“Everyone is entitled to their own opinion, far be it from me to say otherwise,” notes former fund manager and FX trader Richard Breslow, but as far as the dollar is concerned – it’s going higher, he contends.
As true as it is that differences of opinion are what “makes markets”, I find the avalanche of analysts arguing for an imminent move lower in the dollar confounding. The most you can say is the jury is out. Both technically and fundamentally. To say otherwise strikes me as arguing without the facts being in evidence. Rhetoric can be an effective form of argument. It may even be borne out by future results, but “Leap of Faith” isn’t something that really belongs in the pluses or minuses side of the ledger when settling on a trading strategy.
The dollar has been doing a lot of nothing for the last couple of months. It will break out at some point. But patience actually is a virtue when the range-trading opportunities continue to present marvelous possibilities.
The charts are difficult to read but if you were forced to say something, they would actually give a passing nod to a higher not a lower dollar. There is a better argument to be made that the DXY, and certainly the EUR/USD, are tracing out potential pennant formations favorable to the currency.
If I were looking for signs of a directional move, devoid of a lot of the cross-currency noise, I’d put a yellow Post-it on the bottom of my screen with the range for the euro versus the dollar set on June 14. We seem trapped within it. That’s when President Mario Draghi surprised a bulled-up market for euros by the extent of his dovishness post the ECB’s rate-setting meeting. I like it as a marker because you will be put on notice somewhat ahead of levels a lot of people are looking at.
One thing we do know for sure is that the Fed is in the process of raising rates and both the ECB and BOJ again made it clear, in the last week, no matter how wishfully you want to spin it, that they are on hold for the next year at least. Global growth is indeed growing, but by any measure the U.S. is outstripping Europe and Japan. People keep telling me that all the good news is already built into the dollar’s value and when, not if, growth differentials narrow markets will realize the error of their current ways. I’ve got news, those forecasts aren’t a secret.
And those expecting for the Fed to start tacking dovish are misreading what Chairman Powell meant by “for now”. He’s a pragmatist, not a zealot.
The phrase “secular decline” gets bandied about a lot. As in the dollar will resume its move lower driven by greater forces…I’m hard-pressed to see any secular decline but should it even exist you would have gone broke many times over waiting for it to bail out your positions. In any case, DXY has spent the majority of the last three years above its 20-year average price.
The weekly CFTC positioning data is also used as a warning sign of an imminent squeeze.
Maybe yes, maybe no, but those are short-term phenomena. Yes, the net dollar longs are the largest since mid-January, but if you look at the disaggregated data versus individual currencies, it would be hard to argue that it is reckless. Was Brexit sorted out and no one told me?
It is getting harder and harder to know what will be potential safe haven currencies or whether or not they will be needed. Yesterday all was happy-on trade. Today not so much. It’s a known unknown is the best you can say.
Where’s the dollar going? We will see. But as recent experience has shown, only time will really tell and living in the moment has its advantages.
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Author: Tyler Durden