On the eve of the announcement of the FED that it will start tapering in the next few months – see INFLATION IS BACK – time has come to BUY the greenback again..
The consensus is extremely negative the US currency and the market is largely long Yuan and European currencies, let alone Canadian Dollars and Australian Dollars.
The announcement of a change of policy that we see as inevitable, will trigger a sharp reversal in the US currency and we have important technical signals against almost every currency.
A reversal in expectations regarding US interest rates will be a watershed moment that will see the currency rise, equity markets fall, gold weaken and Emerging markets suffer all in tandem.
The flight to quality will exacerbate the move in the US dollar.
BUY US dollar Index DXY @ 90.6
In fact, the USD Index has been reversing its long term trend since January and the last bout of weakness in April and May has now reached its limits. The target for the coming move is 92 at a minimum and could be higher if bond markets and or equity markets fall on the news of the FED tapering
Looking at the long term charts another test of 94 is definitely on the cards and we could even test the 100 level.
Short the EUR vs USD @ 1.21
The EUR is confirming the BUY signal on the US dollar with a target of 1.19 and 1.18 in the short term
Short the CAD @ 1.2122
The CAD is overextended after a massive run from 1.45 in Mar 2020 to 1.21 today and a sharp reversal is on the cards.
Short the AUD @ 0.7662
Same here. The AUD is losing momentum and has completed a head and shoulder pointing to a period of weakness ahead with a target at 0.70
Short the GBP @ 1.4096
That is it ! The sharp outperformance of the GBP is ending with a failed breakout to new highs and we see Sterling falling back towards 1.35
What to do with the Japanese Yen
The Japanese Yen has always had a life of its own and looking at the charts we are standing at crucial levels with a tentative break of the all-important long-term downtrend opening the way towards much higher/ lower levels for the Japanese currency.
However, the Yen also has a history of appreciating at times of flight to quality as many hedge funds and investors use it as a funding currency to leverage their portfolios.
We would stay Neutral on the Japanese Yen right now and would take any bout of strength as an opportunity to re-instate short positions at higher levels.
As the long-term charts show, the secular trend for the Yen is definitely MUCH lower with 124, 136 and even 155 as ultimate targets.
Even the almighty Chinese Yuan is sending a warning signal
Our readers know that we have been calling the structural appreciation of the Chinese Yuan in 2020 as the currency was trading at 7.2 against the US dollar. Its 12.5 % appreciation since then is part of a major phenomenon of structural re-rating of the Chinese currency that is far from over.
However, in the short term, we have a sell signal on the Yuan and could see the Chinese currency weakening towards 5.50 or 6.60 before resuming its secular uptrend.
We highly recommend investors to rebuild their exposure to the US dollar for the next few weeks.
DISCLAIMER Mechelany Advisors FZ-LLC or www.mechelanyadvisors.com, is not a registered investment advisor, nor a capital management firm or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Mechelany Advisors FZ-LLC operates as a private advisory and research company where we provide consulting services to pension funds, investments funds and private clients. Our analyses and conclusions are ours and they only clarify and highlight the investment rationale behind our own investment decisions. The analysts and employees or affiliates of Company may - and usually do - hold positions in the stocks or industries discussed here. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. You understand and acknowledge that there is a very high degree of risk involved in trading securities. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns. The indicators, strategies, columns, articles and all other features of Company’s products are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company’s website are for educational purposes only. Such examples are not solicitations of any order to buy or sell securities, commodities, investment products or engage into any kind of trading activities. Accordingly, you should not rely solely on the Information provided in making any investment decision. Rather, you should use the Information provided only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. By navigating on our website or remaining on our subscription lists, you accept our terms and conditions and discharge us irrevocably form all responsibility.