KING DOLLAR - If global equities are under pressure and the Fed still needs to move ahead with a liftoff, where do you put your money? Clearly, if this is the way things are headed, the US Dollar continues to be the best choice. Already on Wednesday, we saw another fresh 11-year low for the Canadian Dollar, while the Rand closed in on a retest of its recent record low. Now I'm not saying we can't see bouts of Dollar selling in between, and I may even take shots at fading extreme intraday bullish Dollar moves. But on a medium-term basis, the Dollar continues to be the play. Looking at today's calendar, the market will initially focus on the batch of US data highlighted by US durable goods. Initial jobless claims and new home sales are also out today and anything on the net positive side from the data will help encourage the prospect for a rate hike in 2015, while at the same time, perhaps shift the focus away from those downbeat global growth concerns.
NOTHING CHANGES - Fed Lockhart was out downplaying risk to the global economy the other day, saying such risks were over-exaggerated. Yet it didn't feel like that last week, when the Fed cited these risks as a reason to hold off on its first tightening since 2006. But even if we break this down, is it fair to assume that if all of a sudden global growth concerns are tempered, the stock market will mount an impressive recovery? I don't think so. We have to remember the stock market has been driven to record highs on the super accommodative Fed policy. And so, it stands to reason that if all of a sudden the market wasn't as worried with global risk, this would only weigh on stocks further as it would almost certainly ensure a Fed rate hike.
LOOKING TO YELLEN - Looking past today's batch of US data, everyone will be looking to see what the Fed Chair has to say late in the day today when she speaks at 21:00 GMT. The market will be hoping the Fed Chair offers a more optimistic outlook for the global economy. But even if she does, I'm not sure it will do anything to help. The phenomenon of a stock market that can only move higher now seems to be in jeopardy and going forward, with the Fed now at the end of its rope in terms of the accommodation it can offer, I fear stocks still have a good deal more to drop, while the US Dollar positions for another broad based surge. As far as trading strategy is concerned, I am keeping my eyes open and as per above, won't shy away from taking shots at selling the Dollar despite my medium-term views, given the anticipated volatility and potential to take advantage of some intense intraday price swings. Stand by.