Another Case for the US Dollar


LOOKING - So have you all seen this EURCHF move? Wow!  While I realize the move has been intense and we very well could see this thing continue to push up to 1.2000, we are now at that point where looking to sell for a nice corrective pullback is making good sense. Of course, I said 'looking' to sell and not sell. Technically, the daily RSI has rocketed through 85! But I have seen daily RSIS trade up to 90 and as always, I won't just jump in unless it's screaming. So for me, the short will need to come with the hourly studies also through the roof. Ideally, and as an added sweetener for, it'd be good to see that psychological barrier at 1.1500 cleared as well before I jump in. Many times, major psychological levels like to be tested before markets reverse and 1.1500 is that level here.

LINKED - So be on standby for a potential EURCHF short today. Not sure we get there, but if we do, be ready. Moving on, it's important to keep you all aware of the fact that there will be an intense reversal in risk assets in the days and weeks ahead. This means we should expect a large retreat in the US stock market and global equities by extension. All of this talk of monetary policy reversal and the removal of stimulus can not happen without stock markets reacting negatively, as this accommodation what had supported the record run in stocks. When this happens, markets will run to safe haven currencies like the US Dollar and Swiss Franc (EURCHF lower), and will also run into hard assets like GOLD. 

RBA HINT - With respect to FX, the US Dollar really does need to see a shorter term recovery very soon. Such technical extension is begging for a Dollar bounce and it would be truly surprising if it didn't happen at some point this week. Interestingly, in just a bit, the RBA will be out with its latest policy decision. In the lead up to the decision, the two top officials at the RBA have been talking less hawkish and have been talking a lower Aussie rate. This should mean we shouldn't be expecting a hawkish leaning decision from the RBA, which would open Aussie weakness against the Buck. As you all know, I like buying AUDNZD into dips. Even if the RBA is more dovish and Ausie falls, I will be happy to buy AUDNZD, as the bet will be that Kiwi underperformance will follow.

If data has weakened in the US in 2017, is it not possible data weakens abroad as well? Via @joelkruger

THE MODEL - I'd like to end off today's update proposing an idea that also should be more US Dollar supportive. I don't believe this idea has been given proper consideration and I think it could become more of a reality going forward. One of the reasons the US Dollar has been hit so hard is the return of softer US economic data this year. But if this is the case, should we not consider the fact that if we are starting to see a downturn in US data after years of accommodative monetary policy, that same downturn should follow in all the other areas of the world where a similar accommodation was applied? If the Fed was the first into the crisis, then what happens in the US should be a model for what happens abroad. And if this is the case, perhaps we should be expecting another downturn in economic data outside of the US. 

BUT WHY? -  Why are we seeing this downturn in US data? Simply put, monetary policy accommodation has been a medication to help the economy back to health. But it isn't the full solution. The economy needs to strengthen on its own two feet and a lot of the artificial support that cushioned economic data has now worked its way through, leaving the data exposed to harsher realities from that crisis so many years back. So with the accommodation reaching its limits, there is no longer anything there to help bolster the data. This has therefore opened up the period we are going through at the moment where US economic data isn't looking all that great. And so, once again, I would propose the idea that a similar fallout should be expected abroad and this could very well end up helping the Buck on a relative basis. 


Euro Battles around 1.1700

The Euro keeps dipping below 1.1700 but has refused to breakdown thus far. 

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