• 3 hours What Does Tesla's Million-Mile Battery Mean For Green Energy?
  • 5 hours U.S.-China Tensions Are Reaching A Boiling Point
  • 7 hours Gold Remains Strong Amid Increasing Economic Uncertainty
  • 22 hours Morgan Stanley And Goldman Sachs Are Betting Big On This Budding Industry
  • 22 hours Global Corporate Debt Soars To $9 Trillion
  • 1 day The Fed’s Slippery Slope
  • 1 day Precious Metals Pulled Ahead Of The Pack In The First Half Of 2020
  • 1 day Tesla Faces $20 Billion In Short Interest
  • 1 day China's Economic Recovery Remains Tepid
  • 1 day Silver Inches Closer To $20
  • 1 day The Secret Life Of Lithium
  • 2 days The Pandemic Proof $53 Billion Industry Wall Street Can’t Ignore
  • 2 days Will Gold Hit $2,000?
  • 2 days Trump’s Proposed Regulation Could Slow The ESG Boom
  • 3 days India To Auction 41 Coal Assets
  • 3 days Eldorado Sees Gold Production Soar In Second Quarte
  • 4 days Do Gold Stocks Still Have Upside Potential?
  • 5 days The S&P 500’s Top Companies Hold $2.5 Trillion In Debt
  • 5 days Electric Vehicle Rebound Bolsters Battery Metal Growth
  • 6 days BlackRock Makes A Run On Asian Stocks
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

  1. Home
  2. Markets
  3. Other

Hurricane Usedelia Strikes the Markets

Sometimes currency trading is exhilarating. Other times it is like watching paint dry. And in some circumstances it is like trying to track a storm. In the last "storm update" we made about the dollar, aka Hurricane Usedelia, on September 5 we reiterated our long held view that, "Our expected strong rally in USD from January to June would be followed by a renewed slide from September to December."

We were early to begin our coverage of the storm and we also told clients that the "easy" money would be made in the first run, while the second half correction in USD would be daunting to track.

So far this year, the biggest surprise to us has been the unbridled passion for gold amongst speculators while they shun similar low yielding safe haven currencies such as the Swiss franc. Below we show a synthetic Commitment of Traders report of the Gold/CHF trade.

Since gold embarked on its bull run over three years ago, the best times to be out of the yellow metal have been when both the synthetic Gold/CHF Commitment of Trader report was above 50,000 net long and when the RSI for the underlying contract had moved above 70 then back below.

As you can see from our chart above, now is just such a time to be cautious on gold. But if you are bearish on the dollar as we are for the seasonal downtrend from Sept-Oct, then the better bet is to be short USD/CHF. Note that CHF has become the new funding currency for the "carry trade" and with USD yielding 3.5% and soon to yield 3.75%, we remain intermediate term bullish on USD/CHF over the next year as traders come in to buy the dips and collect the leveraged carry.

For our near term bearish outlook on USD/CHF to hold we need to see the 50-day moving average reverse Hurricane Usedelia in its tracks and head back down to 1.23 and 85 in USDX.

As we said in our last public update, "The US dollar will likely undergo a 3-4 month correction of its recent gains but will rally again in 2006 because of the large interest rate differential in its favor. Recall that we predicted a dollar rally from January to August to then reverse course in September as the market realized the Fed would pause in its interest rate cycle at 3.5%. This in turn would cause an unwinding of long dollar positions, which would set up the next significant rally for January to August of 2006."

The Fed looks intent on raising again this month but it doesn't have much room to keep on a "measured pace" without inverting the yield curve. So if we do see a pullback in USDX to 85.00 in the coming weeks this will signal a good buying opportunity. If you disagree and think that gold is breaking out then we suggest considering to go short USD/CHF or long EUR/USD instead.

Back to homepage

Leave a comment

Leave a comment