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CURRENCY ANALYSIS

Mid-Year Dollar View Remains Bullish

Brexit exacerbates failed correlations and volatility through 2016

Mid-Year, Dollar, View, Remains, Bullish, Brexit, exacerbates, failed, correlations, volatility, through 2016, Currency Analysis, fx trader, forex.jpg

During the last three months since our April 2016 medium-term outlook in FX Trader Magazine, we are closely monitoring the forecast erratic trends and correction which were the outlook for our global view.   All of the currencies and commodities identified in the outlook have maintained their trends, but the pivotal timeframe approaches that will augment the volatility.

In this article, we will remain focused on currencies as expected, but also continue to include Gold and Crude Oil as they are the major commodities historically correlated with the U.S. Dollar and play an important role in our global outlook of disconnect and volatility. We continue to believe that the U.S. Dollar is the lead indicator across the board, although the lag times for each related asset are greatly different and will produce higher volatility.

EUR/USD

Mid-Year, Dollar, View, Remains, Bullish, Brexit, exacerbates, failed, correlations, volatility, through 2016, Currency Analysis, fx trader, forex eur_usd

As stated in the previous four articles in FX Trader Magazine [apologies to the avid readers for the repetition], we have stressed our very long standing view of the bearish seven-year cycle for the EUR/USD. Our long-term forecast has continued to stress a top in the EUR/USD since 2009 [at 1.4740], as well as the forecast the subsequent decline to 1.1555 for March 2014. The decline to only 1.0460 [ shy of the .9890 ongoing long-term objective of the last three years], and retest of 1.1715 only dampened bearish long-term momentum for the EUR/USD, but did not terminate the forecast decline. The EUR/USD graphic is the same graphic from January, and shows the completion of the forecast correction for January 2016. We are in a prolonged development of the medium-term corrective top in the Euro, buoyed by the corrective rallies in Oil and Gold [see below] and continue to forecast a resumption of the decline still to .9890 out to November from May 2016. We continue as well to forecast a further decline to .9330 strong long-term support through January 2017 in an even stronger dollar outlook than the previous 5 years. Only a monthly close in EUR/USD still above 1.1715 would dampen the bearish long-term technical aspects of the market, and result in a strong retest of 1.2230 in a higher, choppy outlook [1.0880 - 1.2230] over the subsequent six months.

GBP/USD

Mid-Year, Dollar, View, Remains, Bullish, Brexit, exacerbates, failed, correlations, volatility, through 2016, Currency Analysis, fx trader, forex gbp_usd

GBP/USD has remained bearish in our long-term outlook for the last two years. The extremely strong and historic “Brexit Decline” in GBP/USD has produced a premature decline to the 1.3655 ongoing long-term objective for October 2016. In the process of this premature decline, the decline through 1.3655 to 1.3120 has begun to develop complex medium-term divergences.

Similar to our previous three GBP/USD outlooks in FX Trader Magazine, after the forecast decline to 1.3655 from the forecast correction to retest 1.4565 for April 2016, we continue to forecast the subsequent broad bottoming formation, now from June 2016 through January 2017, in a lower long-term consolidation into March 2017 [1.3035 – 1.5365]. Only a monthly close back below 1.2720 would increase bearish medium-term momentum and result in a deeper decline to 1.1890 over the subsequent three months. NOTE: EURGBP decline to the .7070 long-term objective for January 2015 complete; now decline from .8360 to .7580 through October 2016 in [.7580 - .8360].

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