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"We're looking at two stories in the U.S. dollar right now" (Part 2 of 2)

Our Currency Pro Service editor gives you his outlook for the dollar

by Alexandra Lienhard
Updated: June 19, 2017

In part 2 of this interview with Jim Martens, the editor of Currency Pro Service, he tells you why his view on the U.S. dollar is "splintered" right now, in terms of strength vs. weakness. Jim also discusses recent price action in the British pound and highlights opportunities in the cross rates.

If you missed part 1, you can watch it here.

 

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[Editor's Note: The text version of the interview is below.]

If you missed part 1, you can watch it here.

Alexandra Lienhard: And Jim, the British pound has also been grabbing headlines lately, as it tends to do so. Same question, what are your thoughts medium-term?

Jim Martens: Well here too we've seen cable moving higher since about October of last year. And you'll notice too, just look at the trajectory of the move. You can see how overlapping it is. Here's the low. And you can see this move. It never really is sharp, or at least it's not sharp when we look at the whole thing in its entirety. Now compare that to the decline before. Starting from up here and all the way down, the down movements are clearly sharp, which means they're in the direction of the trend at one larger degree. And that's particularly true after the Brexit vote, which was there. And now we're seeing that same thing after the recent election here near 1.30. And you can see the breakdown occurring over the day of the election. We've had a brief recovery right before it. Now we had a breakdown right after and we think we're just consolidating here before we continue lower. But it's the contrast between these trends that you see, that down move initially, which was quite clear. There's no doubt about the trend. And we had that recovery that lasted from October all the way until probably May of this year. It was really a struggle for sterling to rise. And that signalled to us that it was just a correction the entire way along. You'll also notice that where it peaked near 1.30 falls within this consolidation range, which is quite common. And it was an area we were looking for a top to form.

AL: And Jim, you had said sell cable before the election, regardless of the outcome. Nice call on that. So a final question for you. With the lack of dollar uniformity, it brings the cross rates forward as a key story for FX-focused traders and investors. So which cross rates stand out for you and your Currency Pro Service colleague Michael Madden?

JM: Well right now, keep this chart in mind of cable, and let's take a look at euro/dollar. Because as we see cable rolling over -- and I think it's already peaked and is moving lower -- we have not seen similar evidence in euro/dollar. What you see is a consolidation. I can make a case for a top, but it's not very strong at this time. So we continue to monitor it. But right now, it hasn't broken down, hasn't broken through any key levels or support. So the trend, in the short-term at least, is still to the upside. So let's compare euro with sterling and take a look at euro/sterling. And right away you're probably going to notice that the decline from the high over here down is quite sharp. And again, contrast that with market action that followed. You can see that it's a struggle, almost a sideways affair. And what Michael has noticed is this double bottom right here. And in Elliott terms, that tells us we're looking at particular patterns, either a flat or a triangle. In this case, his preference is for a flat, which could mean a double top, that the euro is going to continue to climb relative to sterling over the short term before that trend is reversed. And that falls in line with what we're looking for at the individual dollar pairs, that being cable and euro/dollar, where I think cable has already turned lower and euro/dollar, which could continue higher over the short term. So again, a double top up near 0.92 would fall in line with that scenario. And then euro/sterling would continue lower.

AL: And Jim, in the summer months, does FX tend to get more or less volatile, generally speaking, or does it even matter?

JM: Well again, I'd let the market speak for itself. But in my experience, kind of like many markets will kind of slow down. Summer vacations, you know, everyone is away from the markets. Liquidity will kind of be reduced oftentimes. And so people might not want to take as much risk on over the summer months. It will pick up again if there's a slowdown, which there hasn't been yet. But if there is, certainly it will pick up in September.

AL: Jim, thanks for taking a couple of minutes to talk today and offer these insights. Appreciate your time.

JM: It's my pleasure, Alex.

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