Give Em Some Space Folks


REMINDER - I have built some long exposure in EURUSD and while this is nothing like the position I'm holding with US equities, it could take some time before the market looks to start pushing up again. This is important to keep in mind as I don't want anyone expecting an immediate jump back to 1.2100. My core view is quite bullish this market, though this is going to play out over the coming months and right now, I'm just sitting back and waiting. As per the analysis, there is scope for a drop that could extend into the 1.1200s before the market looks to resume this new uptrend that got going in 2017. So if you are holding right now, please understand that I am not in a rush to make any moves here and would even be inclined to build some more into this play. What do I like about the long side of this trade?

cartoon nov 7

TWO DRIVERS - Well...there are two driving forces here. The first is the fact that this is where the big money is positioned and this is where it seems the US government is aligned. There has been so much talk about a weaker US Dollar over at the White House, that I believe this could be a difference maker if it continues and if the larger players keep with this trade as they have been for many months now. Even the appointment of Powell as the next Fed Chair is one of those things that lets you know the focus isn't exactly on promoting a stronger US Dollar. But perhaps it's the second reason that is even more compelling to me. When you look at the chart, it becomes very easy to see the breakout in the Euro this year and the formation of what looks to be a longer term base. Certainly there are fundamentals I could, and have presented that make the US Dollar attractive, but the added insight from the charts tell me maybe a little US Dollar strength, but not a whole lot more before another big slide.

The US Dollar run could extend but not for any meaningful period of time before the next big drop.

THE POUND - I'm also holding the long exposure in the Pound and love this one as well. Perhaps we get some dips on US Dollar demand and Brexit worry, but all I heard from the Bank of England governor last week was a message of 'I'm going to scare you all into making sure you get a deal done sooner or later.' That is why I believe Carney went to such lengths...more to accelerate the process than to show real worry of a disastrous outcome. We have to keep reminding ourselves the worst case Brexit scenario is well out of the way. That was back when we were trading in the 1.1800s. And so now with the Pound around 1.3000 (still looking very cheap longer term) after trading up towards 1.4000, I believe the opportunity is presenting.

MORE - There were many positives in the Bank of England had decision that were overlooked last week, specifically relating to growth and wages and I'm loving the long side of this one and would like to hang on for a bit. But just as with the Euro, there are short term risks to the downside and I want to be clear that so long as we are holding up above 1.2500, the trade looks fantastic, with scope into 2018 for a quick run to 1.4500. As a final note, I want to sell USDJPY but that isn't there yet. I will keep you posted and continue to give you a detailed overview of each trade and how I'm managing it, whenever I take it.

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