What's Comes Next?

MONDAY HOLIDAY SLOG - Monday's holiday trading session didn't leave us with much to talk about into Tuesday. China will still be closed for a couple more days and the US will get back at it today, after enjoying the President's Day long holiday weekend. Right now, the market is mostly focused on the state of global risk appetite. The big question out there is whether or not things have really changed this time. Is the recent pullback in stocks just another buy on dips play for what will soon be another record high, or is this that recovery rally that will finally be stopped in its tracks ahead of the record high, for a lower top, that starts a new trend of sell on rallies. It's too early to tell, though fundamentally, it would seem this would be an optimal time to see such a shift. Inflation is starting to show signs of moving more than the market thought it would and monetary policy normalizations are starting to ramp up. None of this is supportive of risk appetite and should start to weigh more aggressively ahead.

cartoon feb 20

ABOUT THE DOLLAR - Looking at the US Dollar, it's tricky. Now that we've seen the Dollar under so much pressure over the past several months, I think we could be nearing that point where the Dollar actually looks to make another big run. This time however, we may see the Dollar running a lot further against some currencies, while others hold up well. I think when it comes to this, we have to consider the Pound as a possible relative outperformer, with the UK economy historically comfortable operating with a stronger currency at a time when no other economy is looking to have a strong currency. The Euro could also outperform relative to the commodity bloc and emerging market currencies, while the Yen and Swiss Franc could do well in a world of risk off. Technically, the Euro is now trading up into longer-term falling trend-line resistance as per the monthly chart, with the major pair still in a downtrend as per this timeframe. But it's super tough to call right now, especially when talking about added variables like soft US Dollar policy and Brexit bumps. And so, my feeling is that we could see that Dollar rally, but I'm not ready to make any trading decisions around it just yet.

Why this time could be different and why the US Dollar has another shot at a big rally ahead.

AUDNZD REPEAT - As per the Monday commentary, there is only one trade within striking distance at the moment. That trade is AUDNZD and the opportunity to buy again into this latest dip. Recall, back in January, we bought some AUDNZD just under 1.0900 and rode that all the way up into the 1.1040s for a nice profit. We've since been on the sidelines, excited to jump back in at what has turned out to be a price that could be significantly more attractive. We may now be able to pick up some AUDNZD 200 points or so lower than the last time and all of this with the overall structure unchanged, still pointing to a longer term base with tremendous upside potential. And so, this trade is right there and I hope we are either in it when you are reading this or about to be in it at some point on Tuesday. As always, I will give the trade plenty of room once initiated, as we could see more weakness before it ultimately rips higher again. Lets see how it all plays out.

The Case Against the US Dollar

Here's a look at the broader market price action in the US Dollar pairs and w...


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