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Macro Picture From Currencies and Bonds Remains Bearish


My overall message is to "sell the rips" in risk assets for all but the most nimble of traders.


The Aussie dollar is pulling back from its long-term resistance once again.

Even the relatively more bullish chart of the Aussie dollar futures (@AD) – which I've highlighted in recent weeks – is seeing a pullback this week. This chart will remain bullish as long as the lower edge of the long-term pennant (what the bulls are hoping this is) or wedge (what the bears are hoping this is) formation. Based on the long-term wave count, my money would be on the more bullish set-up for the Aussie dollar, but I am not married to that opinion and will be quick to change my opinion if the evidence dictates that I do so.

The Canadian dollar's chart is unambiguously bearish.

If you want a clearer message of future direction, look to the Canadian dollar futures (@CD). That very clear message is that the Canadian dollar is headed lower in the short to intermediate-term. This should be read as bearish for risk assets as Canada is heavily levered to the both the natural resources and financial services industries. The Canadian dollar will remain in "sell the rips" mode until at least the 100% Fibonacci price projection line at the bottom of the chart is approached / tested – and that's a long way from current levels.

The British pound – while not a regular "risk tell" for me – may be presenting some interesting trading opportunities.

Another potentially bearish chart set-up in currency land is that of the British pound futures (@BP). If we see the 1.5222 level taken out on the downside on this chart, it will confirm for me that the pound is headed lower – a lot lower. If you couple the anticipated weakness here with the anticipated strength in currencies like the US dollar, you may have a very nice trade set-up (read more on this below).

So, here's one trade off of that analysis...

If I couple the British pound's anticipated weakness with any of the stronger charts (US dollar, New Zealand dollar, and Swiss franc come to mind), some nice profits should be available for the taking. The chart below shows the British pound versus the US dollar (GBPUSD) on a daily mode going back to 2011. Right now, it looks like this cross just completed a wave "iv" move and is in the midst of a wave "v" move to the downside with a target of 1.45675 (from 1.52819 currently). You'll know I'm wrong on this bearish call if 1.54085 is violated on the upside. That's about 1,300 pips of risk and over 7,000 pips of profit potential, which is a very favorable reward to risk ratio.

No positions in stocks mentioned.

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