It is about this time of year when Australians start to think hard about the looming and not-too-far-away Christmas holidays. For many lucky ones the tough decision is whether to go local or go overseas, and it appears to be that more and more are opting to head off overseas. Yes we are lucky inhabitants in one very lucky country.

The next big question for many is when to buy your US dollars because even though the USA economy may be on the long term skids, it is still the currency of choice. I recall in Cambodia a few months ago all you could get from the ATM machine was US dollars and everything was quoted in US dollars. It was the de facto local currency.

The trade off when buying overseas currency is that we don’t want to buy too far ahead as the further out you go, the greater the uncertainty. And for this reason if you were purchasing a US dollar contract, say, for export, you would be paying a premium. So the further out, the less clear we can be about where the currency might be at a time in the future. Furthermore, you don’t want to hold US dollar for too long because you don’t receive interest on US dollars even if your currency was held in a US dollar account. Mind you, this is not such a big deal.

Sometimes we feel more comfortable about a forward view of markets – any market whether that be commodities, stocks or currencies. Other times it is far from clear. At the moment I believe the outlook is less clear.

Let’s look at the short term picture:

Chart 1


click here to enlarge

And now to the bigger picture on the weekly chart:

Chart 2


click here to enlarge

The near term outlook suggests there may be some softening before the next move higher. I don’t subscribe to the view that we will see 80 cents by the second half of August. But the Elliott projection just warns us some softening could be ahead.

The bigger picture says we could see almost parity for Christmas – what a bonanza that would be for travelers and buyers of imported goods for Christmas.

But much could happen between now and then.

A pall of darkness still hovers near Europe.

Enjoy the ride.

Tom Scollon
Chief Analyst
Optionetics.com.au
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