The Core Macro Strategy


Summary

  • USD weak but other weaker
  • More than just about yield
  • Nothing exciting about fiscal stimulus

GAME OF RELATIVES - I'm not convinced this latest bout of Dollar selling has run its course just yet but I am fairly confident the Buck will have another strong run this year. Still, the overall strategy from a trading perspective is to be looking to buy the US Dollar into dips. As a reminder, as much as the Fed may hold off on rates, this shouldn't be an automatic endorsement to buy currencies. As troubling as it all may be in the US, it's that much worse abroad and the US is ahead of the curve. The US was the first into this crisis that has been going on since 2008 and will be the first out. 

WHICHEVER WAY - More importantly, the US Dollar isn't only yield driven. If the market starts to get worried about exhausted monetary policy that is no longer doing the trick in terms of incentivizing investment in risk assets, this will open the door for a massive liquidation in these risk assets and in turn result in safe haven USD flow. So either way you slice it, the Dollar is king and will continue to be. As you all know, I've taken my shots at buying Dollar dips this week and we will see how it all plays out. 

THE GREAT ESCAPE - On Wednesday we did see a little pullback in stocks and this would be supportive of my case to be long the Buck. I am still betting on a material reversal in the US equity market that will send chills throughout the global financial system. We've managed to escape this reality for so many years now, but as they say, "you can run, but you can't hide." It's taken time but at the end of the day, the market will still need to feel the effects of the crisis that it has yet to feel from all the artificial support and we are getting that much closer with monetary policy exhausted.

Fiscal policy stimulus won't be as sexy to investors as monetary policy stimulus. Via @joelkruger

NOT AS SEXY - Another important point here is that it's been easy monetary policy that has stimulated investment in risk assets. So if the sh*%t hits the fan again and the response comes by way of fiscal stimulus, investors aren't going to care as much as they won't be getting anything out of the fiscal response. Sure, fiscal measures help the real economy. But how much do they really get investors excited about buying stocks? I'm not sure they do all that much. So I'm sticking with the long Dollar, short stocks strategy and will be looking to see how it all plays out int the weeks ahead. 


A Week in Review

What a wild week and we are not even done. Here are some reflections. 

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