DON'T KICK YOURSELF - So US traders are off celebrating and markets will be thin for the remainder of the week. As per Wednesday's commentary, be careful out there and make sure not to force anything. Clearly, it is never a good idea to force a trade, but forcing a trade during holiday trade is even worse. Why? Because you have yet another reason to kick yourself when the trade doesn't work out. In the spirit of today's light trade, I will go ahead and respect the holiday and keep the commentary light as well.
FIRST REASON - Overall, some interesting price action into Thanksgiving. The key takeaway is the pared back appetite for long USD positions despite ongoing fundamentals which would normally be supportive. I would highlight two important developments that could be factoring into this price action, both of which should only have a short-term impact. The first is a US Dollar market that has been heavily bought over the past several months and is now aggressively weighted long Dollars. Whenever you get such aggressive positioning, there are bound to be periods of profit taking so the ratio can normalize a bit.
SECOND REASON - The second reason for a bit of US Dollar selling in the market has been the Fed's subtle but noticeable move in highlighting external influences on monetary policy. In recent months, it seems the Fed has become increasingly aware of the risk in adopting a tightening bias with the rest of the world headed in an opposite direction. The recent moves from the BOJ, ECB, and PBOJ all highlight this divergence. And so, the Fed is perhaps signaling to markets that it will pull back a little bit and look to be less aggressive with a tightening, so as not to create too much of an imbalance. This in turn has detracted from some of the lure of increasingly favorable US Dollar yield differentials and has opened a little profit taking.
NEW TRADE - I wasn't looking for it by any stretch, but an old friend came knocking on my door late Wednesday. I had seen in recent days that AUDNZD had come back under pressure below 1.1000. This was a trade I had played with several months back with little success. So when the market came crashing down on Wednesday I was alerted to the price action through my systems and was glad to see there was an opportunity to try again. Technically, the market is oversold and coming back into some key rising trend-line support off the 1.0490, 2014 low. So the trade make sense on that front. Fundamentally, Aussie has taken quite a hit on some bearish rhetoric from local officials and dragging commodities prices. But at the same time, Kiwi is a victim of the same fate and I believe is more exposed given its higher yield and risk that we will soon see a capitualtion in US equities, which will weigh more heavily on Kiwi. So I am long 1.0829 and we will see how it plays out. I think there should be plenty of medium-term upside here.
POPCORN TIME - But in the end, both of the factors cited above should not have any meaningful medium-term implications and the US Dollar should still remain attractive on the diverging central bank policy theme. The US Dollar has been strong and still stands to gain a lot over the coming months should the broader global macro economic landscape continue with its current trajectory.
A GEM! - Now in the spirit of the holiday, I will offer this sweet little gem of a gift to you all. Grab some popcorn and a drink, sit back and enjoy. It's another oldie, but a real goodie.
TRADE JOURNAL - Just a quick reminder, I have four open positions at the moment: Short SPX500, Short USDJPY, Long EURCHF, Long AUDNZD (see Trade Journal below)