John Taylor (FX Concepts) Eyeing EUR/USD Trend Reversal, Greece, Spain Will Default, COT Chart (EUR/USD, USDX, DXY, UUP, FXE)

I originally found this interview at Zero Hedge, find the video there, hat tip.

John Taylor of FX Concepts LLC (largest currency hedge fund in the world) was on Bloomberg TV on August 6 (video) calling for a trend reversal in EUR/USD (Euro/US Dollar). I see that large speculators and commercial hedgers are converging on the Dollar Index Future Commitment of Traders chart (COT). Large traders are net long 12,375 contracts (green line, 3rd chart) while commercial hedgers are net short -14,082 (blue line). In March the spread was 30,000 and -40,000, so it narrowed significantly. Catalysts will widen the spread and confirm a direction from here. Watch the Fed reaction tomorrow.

Taylor was publicly short the Euro in early 2010 when the sovereign debt crisis hit Greece and Euro-zone contagion fears spiked. On March 25, when EUR/USD broke support at 1.33, Taylor was on Bloomberg saying EUR/USD would hit 1.20 by August. The pair bottomed out at 1.18 in June before the upside retracement, in which he went long.

Now he's calling for a downside reversal in the Euro (EUR/USD) with a target of 1.0-1.10. It is trading at 1.32. What will be the catalyst?
  • ECB will be forced to lower rates in the 4th quarter (on austerity/slower economy) and he thinks the Fed stays put (interest rate differentials in USD favor)
  • Economy starts to roll over in the 3rd and 4th quarter, banks get nervous again, demand Dollar liquidity to manage US Dollar denominated debt and a Dollar shortage occurs (supply/demand in USD favor)

Oh and John Taylor thinks Greece and Spain will eventually default on their debt. Watch the Fed tomorrow for a catalyst.

EUR/USD (Euro/US Dollar) -

DXY0 ( US Dollar Index) -

Dollar Index COT -

Bloomberg article: Dollar Will Appreciate as Global Economy Resumes Its Slump, Taylor Says