EUR/USD Target 1.40

I'm basing this on a long term trend that happened the last time stocks were doing great and oil was rising.

Best way to see this is on a weekly chart.

I'm not doing exact dates and numbers but this basically goes from Nov 2005 with the euro at around 1.700 to April 2008 when it got into the upper 1.59's and briefly popped over 1.60.**

Figure like 4200 pips in 2 1/2 years.

Now let's go from December 2016 to Jan 2018 which takes the Euro from 1.03 to 1.2300.

Figure like 2000 pips in 13 months.

Excluding Trump or Kim pushing their buttons, I don't see why this can't go another 2000 pips in a year give or take, because that basically replicates what we've already seen the market do when stocks are going well and oil is rising.

**Interesting tidbit: The euro popped over 1.60 the week of April 20 lol

Not long euro/usd at the moment due to the risk of the ECB making a comment along the lines of 'a stronger euro will dampen our inflation expectations.'

While that's likely to cause the euro to back off a bit, the upwards momentum should maintain.

The new normal correlations are: more QE=stronger currency.

This of course is the complete opposite of what market historians would predict since rising interest rates would be expected to draw demand for that currency.

Dollar depreciation is also a tail risk for stocks since foreign investors (un-hedged) get hurt when they repatriate. For example, euro investors only made around 7% on the S&P in 2017.

before 1.40 , there will be one big pull back.

You could be right. I got long again at 1.2430.

With all the discussion about how Dragi might do a repeat of September, he basically did the exact opposite.

I really do believe in the new normal correlation: More QE = stronger currency

I really wouldn't be surprised if it did reach that level in the longterm. There should be significant pullbacks along the way, however.

I look at everything the same way I look currency pairs. When one side is appreciating it means the other side is depreciating. So it makes sense to view increases in stocks and energy prices as the dollar depreciating against those markets.

Pre-crisis, the euro was well correlated with stocks and oil, which both rose as the eur/usd moved higher. Brent crude was in the low $20's last year and as it rose, the dollar fell. That makes sense because as oil rises, it means the dollar is depreciating. Same thing with stocks.

As far as trading is concerned, I use fundamentals to gauge the direction and Fib lines to get an entry price. I basically follow the trend but i don't go long at tops or short at bottoms.

If a market is going up, I put the 100 line at the bottom and the 0 line at the top. Then I wait for price to drop below a Fib line and go long from there. The idea with this is to be able to hold a trade with a tight stop while having a high upside. When a market is going down I do the opposite.

My basic goal is to set trades up so that if I win only 1 in 3 trades, I can at least break even and sometimes turn some profit. Then during times when I'm running 50/50 or better, I can really score.

Euro target 1.40 is alive and intact, especially with the Fed saying this week they expect inflation to quicken.

Aside from further strengthening the bond bear market, that kind of language implies the value of the dollar will be decreasing because that in essence is what inflation means.

Look at everything the same way you look at a currency pair; Food/USD, Gas/USD, Clothing/USD, it all means the same thing. When one side is increasing it means the other side is decreasing. So if the Fed is saying it expects inflation to quicken that indicates dollar weakness.

Then we have the trump admin, which is dedicated to weakening the dollar. We saw this last weak at Davos when Mnuchin said a weak dollar supports exports, which of course it does (it also supports the case for more inflation as imported goods become more expensive.)

What trump said afterwards means less than nothing to me, nor will it mean anything to the market in general. Bringing down the trade deficits will be something trump will be most eager to brag about, so in my mind there's no question the admin does indeed prefer a weaker dollar now.

Turning back to the Fed, what they said indicates a quickening pace of rate increases, with an increase in March all but assured. The only question now is whether we'll have 4 increases this year rather than the 3 most expect.

This too will have a negative effect on the dollar, as the markets will continue to chase currencies still in QE (Europe and Japan.)

So if we look at the dollar's reaction to the NFP, we can see why everything works like a currency pair. As the dollar got stronger, 'pairs' like OIL/USD and STOCKS/USD went down on the charts (the dollar gained while stocks and oil fell.)

When you look at things without understanding this connection it doesn't make sense for stocks and oil to fall, because more jobs = stronger economy = more demand for things like stocks and oil. But because everything works like a currency pair, when the market bought dollars they fell.

Going forward, the weaker dollar trend will not be broken because all things being equal, once the NFP effect fades (which will happen later today or perhaps at the Sunday open) stocks and oil will resume their upward trend.

After seeing Brent crude bottom just under $68, while the S&P was down a bit over 1%, traders started buy both and the dollar pulled back form the gains it had made.

Right now, if you're overall bullish on stocks, oil and inflation, which I definitely am, you can buy the euro at a discount and sell the Yen and Loonie while they're overvalued.

I was reading a market article on Bloomberg that was talking about a near 3% drop in the S&P, which last happened about 2 years ago. The article implied doom but I look at it as an opportunity to buy at a discount. And if you had done that 2 years ago you're sitting very well today.

For example, I have a Fib on my USD/JPY chart with the 100 line at the high on Jan 18 to the low made on Jan 26. Price popped over the 61.8 after the NFP and I started watching it while I looked Brent and the S&P. It rose a bit further, I saw those markets start to turn, then bought the Yen.

There's only one thing which can alter my overall bullish opinions on stocks and oil and bearish opinion on the dollar: The Fed.

Let's go back to when the financial crisis was still relatively young-the summer of 2007. By then, we had already seen several mortgage lenders collapse and the writing was on the wall for the biggest bust in U.S. history, Lehman Bros. As the Fed met at it's annual enclave that August there were rumblings about a rate cute, which happened in September when they cut by 50 basis points.

That for sure was the signal to get the hell out of stocks. The Fed had made the extraordinary move based on what they saw as potentially dire circumstances. Lehman filed for bankruptcy in September, and Stocks peaked in October 2007. They didn't bottom until March 2009, after Bernanke went on 60 Minutes and said the Fed was "electronically" printing dollars.

So it would take something extraordinary by the Fed to again get me bearish.