Running into a Wall


THE MAJORS - The US Dollar continued to run on Monday, extending gains to fresh 2018 highs against the Euro and Pound. And yet, we have to stop and ask where exactly the Dollar is running. I believe the Dollar is about to run right into a big wall and will soon be on its way back the other way against many currencies and certainly against the other major currencies. The reason I am particular about separating the other major currencies from the rest of the pack is that I also anticipate an intense period of risk off trade as monetary policy normalizations push forward, which should leave the more risk correlated currencies less inclined to want to be appreciating at the same rate as currencies like the Euro, Pound, Swiss Franc and Yen. Now, it's never easy trying to isolate that spot where a reversal will occur, but given the nature of this short term US Dollar extension and given the medium term picture which should have some of the bigger players looking to build into existing short Dollar exposure, I suspect the reversal could come over the coming sessions.

cartoon may 22

IDEALLY THIS - At the moment, the anticipated risk off flow and Dollar reversal should result in some upside and follow through in our current long EURCAD position. As per recent updates, I would be delighted to see a scenario where risk off comes into play and leads to a higher EURCAD, while the US Dollar rallies a little more to give me a short USD trade as well. But I won't force anything and will sit back to see what happens. I do think it was more than interesting to see the stocks market well capped into the Monday open despite the good news over the weekend and would perhaps take that as yet another signs that shows just how much equities will be unable to avoid a long overdue period of very healthy corrective declines to the tune of about 25% off the record high from January. Monetary policy normalizations are happening and not a good thing for stocks. Inflation is coming and won't do anything to help things along for the bulls.

The Dollar run is about to collide with a big wall.


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