Don't Count the US Dollar Out Just Yet

  • Keep an eye on the S&P500 and OIL
  • USDJPY not confirming risk on move
  • Looking for USDCAD recovery

BORING  - There isn't that much to talk about into Tuesday. Everything is rather boring at the moment. Currencies are all confined to some consolidation and the next short-term directional move is difficult to forecast. I would say right now, the focus should be more on markets outside of FX, that could spark renewed volatility in FX. Both the S&P500 and OIL have enjoyed nice rallies over the past several days, but both of these markets are still at risk of rolling back over at any moment. As things have been correlating, the move higher in OIL is reflecting an uptick in investor sentiment, though it all feels like it could come crashing down again at any moment. Look no further than USDJPY, which has been unable to generate any meaningful bids despite this run up in stocks and OIL. 

STRATEGY - My bet is that the next big move will be another risk off move, that ultimately benefits the US Dollar. While I believe we could be nearing the end of an impressive uptrend in the Buck, I don't believe the US Dollar is done just yet. I think the US Dollar rally will be closer to a top once equities finally settle into levels a good deal lower than where we are standing right now. And so, I am positioned short risk, currently by way of some long USDCAD exposure, with another pullback in the price of OIL to likely further contribute to renewed USDCAD upside. The position is running out of the money into Tuesday and I won't rule out another drop lower towards the October base at 1.2830. But in the sessions ahead, I see greater risk for a recovery back above 1.3500 than any sustained weakness below 1.3000. 

US Dollar rally still has room to run. Via @joelkruger

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