• 35 mins Tesla Looks To Jump Into Indian Market
  • 3 hours Global Banks Lay Groundwork To Re-Inflate Asset Prices
  • 19 hours Homeowners Experiment With Risky New Investment Trend
  • 22 hours U.S. Tech Stocks Look Increasingly Vulnerable
  • 1 day De Beers To Expand World’s Most Profitable Diamond Mine
  • 1 day Ford CEO Gets Raise After Massive Layoff Round
  • 2 days Germany’s Flirtation With Recession Could Cripple The Global Economy
  • 2 days Where To Look As Gold Miners Inch Higher
  • 3 days Google Faces Billions In Fines From European Regulators
  • 3 days The Energy Industry Has A Millennial Problem
  • 4 days Russian Banks Scramble For Sanction Loopholes
  • 4 days Gold ETFs Take A Hit After Four-Month Run
  • 5 days European Union Takes Aim At Ten New Tax Havens
  • 5 days Goldman Defends Trillion-Dollar Corporate Buyback Spree
  • 5 days $600 Billion At Risk As Boeing Fallout Continues
  • 5 days Venezuela Has Yet Another Crisis Developing
  • 6 days Wells Fargo Accused Of “Ongoing Lawlessness”
  • 6 days Hollywood Agency Returns $400M Investment To Saudi Wealth Fund
  • 6 days Why Twitter's CEO Is Backing A New Bitcoin Boom
  • 6 days U.S. Treasury To Employ “Extraordinary Measures” To Fend Off Default
Lending: The Good, Bad, And Ugly

Lending: The Good, Bad, And Ugly

Aristotle said, “The most hated…

The Chatroom Cartel Running Global Bond Markets

The Chatroom Cartel Running Global Bond Markets

Eight major banks have been…

  1. Home
  2. Markets
  3. Other

Is this it for Dollar Bulls?

US dollar bulls couldn't have asked for a better scenario -- Just as the USD index (basket of 6 currencies largely weighed vs EUR) was about to test a 3-month trendline support, the currency recovers. And just as EURUSD had broken above its 200-DMA for the first time in 13 months and above its 55-WMA for the first time in 12 months in a matter of 4 days, the single currency crashes back below these key levels later in the same week. But CAD, AUD, NZD and NOK have all outperformed USD thanks to a broad bounce in energy.

US Dollar Weekly Chart


Dollar Sweet Spot?

So is this it? Is this the pause-for-breath that USD bulls have long demanded for their currency before accumulating further gains into the rest of the year? By Monday evening, expectations for a September Fed hike fell to as low as 20% from as high 57% earlier in the month. Today, odds of a September lift-off bounced back to 30%.

We think that in order for the US dollar to accumulate fresh gains and sustain them, the balance between certainty for a 2015 Fed hike and certainty of no Fed hike must be evenly distributed (such as 45%-55% for Sept). The problem with +60% certainty of September move is that it eliminates the probability for a December hike despite what some FOMC members' forecasts have indicated (2 hikes in 2015).

For obvious reasons, USD bulls do not want Sep Hike odds falling below 20%. Therefore, the sweetest spot as far as Sep Fed hike expectations is for them to range roughly between 35% and 50%.


Conventional & unconventional intervention

Readers of my work may not need reminding that I still see no Fed hike in 2015 and any such action would be a policy error, which will trigger more "artificial" interventions from the Chinese, as well as the US authorities (but deemed more conventional) such as "circuit breakers" and "Rule 48".

In fact, China is not only intervening by propping its stock market, but more importantly, selling US treasuries in order to slow the pace of CNY depreciation. A rapid CNY decline has devastating effects on the global markets and economy via renewed decline in commodities and gloomy prospects for emerging markets dependent upon exports from China. The other (more national interest) reason China is slowing the pace of CNY depreciation is to avoid rapid capital outflows. Both aims are to the benefit of global markets and the economy.

Premium subscribers who have questioned our recurring USD shorts vs EUR and GBP since June have obtained their answer this week and the last as our $1.15 and $1.17 targets in EURUSD have both been hit.

Now comes the hard part. Trading the retracement.

 

Back to homepage

Leave a comment

Leave a comment