-- Published: Monday, 28 July 2014 | Print | Disqus
By Victor Adair
The US Dollar Index was very strong in July…closing last week at its best levels since February…very close to a major chart breakout. The Euro closed at an 8 month low…we expect it to take out last year’s low (128) before the end of this year. CAD hit a 5 year low (8850) in mid-March…rallied to 9400 by early July but has since traded back below 9250. The 3 month CAD rally was fuelled by short covering…speculators actually became net long in July…we expect to see them reverse their positions again…we see 9400 as a roof and look for CAD to make new lows this year.
We think AUD and NZD are far too high and could easily slip 5 – 10% before the end of the year. Any news of China slowing would accelerate the move.
For our short term trading accounts we remain long the US Dollar Index, short CAD and AUD. We are staunchly bullish the US Dollar and we are looking for other opportunities to profit from that view. Longer term: We think the US Dollar will have a major multi-year rally against most currencies as global capital flows to the relative safety and opportunities in America.
We are seeing growing evidence that the fabulous 5 year rally in junk and high yield bonds is over…we expect a possible rout in this market as so much money (and leverage)has been drawn here over the past several years as “everybody reached for yield.”
It’s been an amazing bull market…33 months without so much as a 10% correction…people have been rewarded for buying dips…geo-political crisis don’t seem to matter…the obvious sentiment is, “Where else can you put your money?”
For our short term trading accounts we sold the S+P 500 short last week…let’s call it trader’s “gut feel” that this market is ripe for at least a modest correction…but we’ve got very tight stops…we respect the momentum of this rally…but…we sold it short.
Risk On / Risk Off:
We’ve been expecting the runaway “Risk On” Market Psychology to end…either from a geo-political shock and/or from a realization that the Fed will be raising rates faster and sooner than the market wants to believe. We expect this “switch” to “Risk Off” to manifest in:
1) A US Dollar rally as capital “comes back to the center,”
2) Credit spreads to widen as people “bail out” of weaker credits, and
3) A correction in the stock market.
We think the smart money is getting defensive…witness the US Dollar rally and the widening credit spreads…we expect a break in the stock market.
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-- Published: Monday, 28 July 2014 | E-Mail | Print | Source: GoldSeek.com