ACROSS THE BOARD - All of the major currency pairs are well stretched on a technical basis. I'm not sure I can remember the last time EUR/USD, GBP/USD, USD/JPY and USD/CHF were all overextended at the same time. Clearly we are in the process of some major repositioning in the marketplace right now, with participants rotating back into the US Dollar. The demand for the US Dollar extends beyond the major currencies as well, and it would seem that all of this is being driven on the anticipation of a Fed shift. It really doesn't matter when the Fed raises rates at this point. All that matters is that the Fed has gone as far as it will go with monetary policy accommodation. And so, it would only make sense to start to price in the beginning of the end. Going forward, over the coming years, yield differentials should start to narrow and eventually even widen in the Greenback's favor.
WAIT FOR THE DIP - The market doesn't seem to be too concerned with the latest NFP disappointment and is probably expecting the Fed to continue on its course to higher rates. But from a short-term perspective, these moves have been rather wild, and it would seem there should be a period of USD selling before the buck reasserts. And yet, we haven't seen anything of the sort. All of the major currencies are making fresh yearly (and in some cases), multi-year lows against the US Dollar. The Pound is the most extended at the moment, having gapped lower on the weekly open, smashing through the previous yearly low, taking out heavy sell-stops and looking to threaten a test of next major support against the USD at 1.6000. Meanwhile, EUR/USD is gravitating back towards 1.2750, while USD/JPY is already looking to 110.00 and beyond. My best recommendation right now is to stay sidelined until the USD pulls back and then look to buy the USD dip.