THE DREAM - We've been doing a lot of talk about the next big move in the US Dollar. I have told you many times in recent days that I think the next big move will be in favor of the Dollar. I also will be looking for a little more USD weakness ahead of the move that acts as a trap for USD bears. Using EURUSD as our example, the perfect scenario would be to see the Euro push up towards 1.1000 over the coming sessions, produce some super stretched readings and invite an amazing opportunity to sell for a big drop to fresh 14 year lows, ultimately exposing a parity test. This is the dream scenario. Of course, I have no clue how it all plays out and as I've said, all we can hope for is some big moves and volatility that bring us whatever opportunities. As a trader on the sidelines, you have no responsibility to know which way the market will move and you shouldn't care. All you should care about is that whenever the market does move, whichever way, you will be ready to react.
50/50 - But I have to say, I have seen a lot of research and opinions on the topic of the US Dollar outlook and these opinions come from people I respect a great deal when it comes to anticipating market direction. I would tell you that if I were to separate out these opinions, there would be a 50/50 split with two very passionate sides. One side believes Trump protectionist policies will invite a soft Dollar policy that we have been seeing signs of this week, which will open a depreciation in the Dollar. The other side acknowledges this possibility but doesn't believe that Trump protectionist policies alone can direct the US Dollar. This side would argue that the combination of other Dollar supportive Trump policies (fiscal spending, tax cuts) and a Fed that is the only major central bank raising rates (no matter how slow the process), is enough of a combination to more than offset any Dollar weakness on US administration attempts to weaken the currency. This is the side I'm leaning on, but I can really see it going either way.
POSITIONS - Moving on, in the Wednesday technical update, I talked about the need for AUDNZD to make a move to the upside imminently and on Thursday, this is exactly how it played out. As I always say, whenever there are signs of technical reversal, it's funny how fast some fundamental justification emerges for that reversal. In this case, that justification came by way of New Zealand employment data which was a good deal softer than expected. I'd like to see AUDNZD push through and close back above 1.0550 in the sessions ahead to get this trade going. Of course, I also have my out of the money SPX500 short position. I recently took a shot and sold some more, but put tight risk on the portion of the trade. It didn't work out and I exited for a loss, but I will happily do so again into another strong rally. Rarely will I sell as the market is dropping, because I find this to be exceptionally difficult given my risk profile. Many times you get caught selling while the market is dropping before it quickly races back up. Instead, I prefer to sell into overextension. Not much in the way of surprises from the Fed decision so it's back to FX dominated by politics. Let's see how today goes.