- Market pressure may force Fed to scale back
- Look for another round of coordinated intervention
- Dollar could reverse course as a result
- Fresh trade in play via short USDZAR
FED GAME PLAN - The other day I talked about the possibility for a US Dollar reversal soon. I had suggested the Fed may be forced to scale back with its more hawkish outlook and though I didn't anticipate the Minutes would be more dovish on Wednesday, that's what we got. Of course, the overarching theme of China fear and the systemic risk from this deterioration, is what is commanding market attention right now, and this is what continues to drive Dollar bids. Stocks are coming off hard, now having to deal with Fed normalization and a massive downturn in sentiment. But again, I stress that all of this could force the Fed to take a step back, which will ultimately appease markets and likely open profit taking on Dollar longs. Certainly if the Minutes were more dovish without having factored all of this mayhem in 2016, we can only assume the Fed will be that much more dovish in light of these developments.
THE US DOLLAR - China's attempts to stabilize the markets earlier this week were ineffective and it will likely take a more coordinated effort to prop things up. This means a less aggressive Fed. So everything is playing out as I would expect it to, and it is just a question of waiting for the right moment to establish that short USD position. I am going to go ahead and start to anticipate this moment today. As per my commentary in recent days, I have talked about exercising this short USD view by way of the Rand. I believe once the US Dollar starts to reverse, those currencies that have been hit the hardest, may stand to benefit the most. And the Rand has been hit real hard!! Another fresh record low on Thursday (USDZAR high). USDZAR has broken through 16.1000 and this is where I am making my initial stand.
SHORT USDZAR! - I sold into a very overbought hourly but am more excited about a monthly RSI reading above 90!! Again..that's a monthly reading! It may take some time for the trade to materialize, but I am very excited right now. I can't remember the last time I was carry trading, but if I can catch this reversal, will also have the added benefit of a healthy positive carry. Moving on, I will be looking to sell more aggressively into USDCAD around 1.4200. I continue to hold my SPX500 short from 2088 which is well in the money, and continue to hold my long AUDNZD position, a little out of the money but nothing I am concerned about as I wait for the monthly to carve an inverse head and shoulders. Finally, earlier today, I exited my long GOLD position for a nice little profit. I was trying to lighten up and mistakenly exited the entire position. Rather then jump right back in, I took it as a sign and am sidelined for now. Things have been nasty today. But volatility is what we love and crave and nasty is a very good thing. Let's see how the day unfolds.