A Great Set-Up For The Dollar

Published on: September 19th, 2017

Raoul thinks that the FOMC meeting may well offer a great opportunity for a dollar long trade…

Comments

  • JQ
    JACK Q.
    28 September 2017 @ 02:49
    Looks like DXY's finally got that upside momentum picking up. Bank side our fx guys saw EM currencies starting to unwind, especially MYR, IDR , and india
  • JQ
    JACK Q.
    28 September 2017 @ 02:49
    Looks like DXY's finally got that upside momentum picking up. Bank side our fx guys saw EM currencies starting to unwind, especially MYR, IDR , and india
  • CL
    Charl L.
    26 September 2017 @ 12:09
    Agree that the Dollar is key to what happens next from a Macro perspective. Interestingly the BIS noted that the outstanding dollar liabilities that was believed to be about 10 trillion is actually around 25 trillion in their latest report. Lots of people wishing for a weaker dollar to persist.
    • CY
      C Y.
      26 September 2017 @ 12:43
      I completely agree. All of you should read the piece by Ambrose Evans-Pritchard on this issue in a recent article in the Telegraph (September 17, 2017). The world is incredibly long a weak dollar and a reversal could have wide ranging effects. Thanks MI for the incredible work. You've really brought an edge to our positioning in the markets.
    • PW
      Paul W.
      26 September 2017 @ 15:48
      Or the original BIS report here: https://www.bis.org/publ/qtrpdf/r_qt1709e.htm
  • JL
    J L.
    24 September 2017 @ 16:26
    neonazis 3rd, socialists weak 2nd in German election, let's see if this helps at the open
    • DR
      David R.
      26 September 2017 @ 15:34
      i think we need to stop calling everyone to the right of bernie sanders a nazi. just not helpful. also, nazi's were socialists. so maybe better designation is neo-feudalist.
  • GA
    Guy A.
    22 September 2017 @ 01:17
    Thanks for being available for questions. I do agree there is a good set up here for at least a retrace of some of the recent decline of the DXY, so I entered the trade in UUP, in addition to some other USD crosses I have already been building in recent days. However, I am unclear if the high reached on 9-20 actually met your criteria for entering the trade. Would you have advised to enter the trade based on that minor break of 24 or were you waiting for a more clear break out? Thank again.
    • RP
      Raoul P. | Founder
      22 September 2017 @ 13:00
      I'd prefer a cleaner break but I cant finesse these things easily in written research so we have to each look at it in our own way and make decisions accordingly. I cant really manage peoples positions, Im just here to give good ideas and macro analysis.
    • JM
      Jim M.
      22 September 2017 @ 13:22
      I think the answer the answer is "no" or at least not yet. This piece is superb.
  • vt
    vadim t.
    21 September 2017 @ 15:32
    Looks like that's it for dollar rally. It's amazing how strong dollar selling no matter what.
    • CY
      C Y.
      21 September 2017 @ 20:50
      it took more than a day to build Rome
  • DW
    Dave W.
    21 September 2017 @ 15:33
    Looks like we either had a false break of 24 on UUP or consolidation before further up move. Raoul, what would you do now? Wait and see?
    • RP
      Raoul P. | Founder
      21 September 2017 @ 18:59
      Yup. We have our stop level and now have to wait. I would have been nice to see more follow through but early days yet.
  • gg
    gurdeep g.
    21 September 2017 @ 07:07
    Didn't take this trade, but great work. Restored my faith in MI
  • CL
    Chris L.
    20 September 2017 @ 18:27
    Well we have broken 24 on UUP and DXY getting pretty close to 9240. Waiting to see if this holds into the close! :)
    • RP
      Raoul P. | Founder
      20 September 2017 @ 18:33
      so looks pretty good... fingers crossed. If it closes well then the chances increase of the big short squeeze. Thats the next step. One step at a time however...
    • CL
      Chris L.
      20 September 2017 @ 18:40
      The step after that is the oil longs get crushed. That would setup a great Q4...
  • NH
    Neil H.
    19 September 2017 @ 20:42
    would love to hear a response from the folks on real vision that have been dollar bears to see if they agree with you or if they are staying the course. I assume a sharp rise in the dollar is bad for emerging markets,gold,oil and metals. if so there could be a lot more capitulation of other assets than folks short the dollar.
    • RP
      Raoul P. | Founder
      19 September 2017 @ 21:13
      We are filming a dollar bulls vs bears piece in the next week or so... so your wish is granted!
    • DR
      David R.
      20 September 2017 @ 18:26
      On a long enough time horizon, any currency bear will win. Unless this time is different. ;)
  • JL
    J L.
    20 September 2017 @ 18:22
    9220 #USA
  • RI
    R I.
    20 September 2017 @ 16:35
    Thanks for the well laid out trade idea. However, since the DXY is due for a dead cat bounce, it's possible that any near-term rise is merely a false breakout, which eventually leads to a resumption of the downtrend (as some technical analysts ascertain). Funny how one man's emerging bull market is another man's bear market counter-trend rally. Playing devil's advocate, the fundamental case for a weak dollar has been made vis-a-vis the multi-polar world we now find ourselves in (not only politically, but economically). In fact, in the weeks prior to his abrupt retirement, Stanley Fischer even lamented this fact that the world lacks a hegemon and doubted whether the US could fill the void. But I digress. I guess time will tell.
    • RP
      Raoul P. | Founder
      20 September 2017 @ 18:19
      sure, if it doesnt fit in your framework or you have the opposite view then use any bounce to short it or sit it out.
  • WE
    William E.
    20 September 2017 @ 18:13
    Actually Raoul... My mother is "long" the dollar! Keep up the great work.
    • RP
      Raoul P. | Founder
      20 September 2017 @ 18:18
      hahaha
  • ET
    Eldon T.
    20 September 2017 @ 16:22
    I may be an "accredited" investor, but sophisticated I am not. I've subscribed to Real Vision and Macro Insiders in order to learn from the best. But sometimes (many times?) what is said goes flying over my head. Like Raoul's latest recommendation for a long position in UUP. The five year high has been 26.63 which is only a 10% gain from the current price. Are you talking about taking a leveraged position with options? If so, what strike and what expiry? If not, are you committing large sums of capital to make it worth your while? Either way, great learning tool. Thank you so much.
    • RP
      Raoul P. | Founder
      20 September 2017 @ 16:26
      You need ot think of it in risk/reward terms. Its a multitude of trades that make up performance, winners and losers. If you risked, lets say 20bps of your portfolio on this trade and made 2% then that is a good trade i.e. a risk reward of 10 times. Do that 10 times in a year and you have an amazing year. People need to not only think of the home runs but the ones and twos that make up real performance over time. I'd really think about watching the Peter Brandt series of videos on Real Vision to better understand this as he is a master of that. Only really experienced macro managers should use large leverage.
  • jm
    joeri m.
    20 September 2017 @ 16:04
    When you measure speculative positioning as a percentage of open interest (which is a better measure imho than just looking at the amount of speculative contracts), and you compare it to the 2002-2008 us dollar bear market, speculative positioning is now as bearish as at the end of 2002. Stating if a speculative positioning is bearish or bullish all depends on the big trend we are in. In a bull trend, current positioning would be very pessimistic dollar so we could expect a rally (like in the middle of 2016) However, when we are in a structural bear market this seemingly bearish positioning means nothing. On the fundamental side I agree, on the positioning side I disagree. I am also wondering Raoul, what is your target? Do you expect a rally like in 2004-2005 after which the bear trend continues or do you think that the high of 103 on the dxy will be taken out? Thank you very much.
    • RP
      Raoul P. | Founder
      20 September 2017 @ 16:23
      My framework, which I have written about and presented on a few times, is for the DXY to get to 120. Clearly, my view is at risk here and now so can reassess.
  • RB
    Richard B.
    20 September 2017 @ 15:08
    Hi Raul, I wonder if I could pick your brain about the homeland investment act? According to my research, it was enacted on 22 October 2004 and participants needed to have repatriated before 22 October 2005. So when you look at the DXY chart over this time frame, the appreciation is only about 5% and it spent half of the time at a lower level then the October 2004 level. Here is my source: http://treasurytoday.com/2005/09/homeland-investment-act To help support your dollar bull case, I wonder if you have looked at the moves in DXY post expensive hurricanes: Katrina – 5% appreciation from hurricane end date to December that year. Andrews – 15% appreciate from end date to December that year. Ike – 12% appreciation (nasty pull back at the end however with good risk management wouldn’t have been a problem) The dollar appreciation on other major hurricanes isn’t that good, but these 3 are a lot more costly than the others. My best guess as to why this occurs is because of the repatriation effect, as investors/ business men move money back to the US to re build. Similar to what happened in Japan after the major earthquake and tsunami several years ago. I wonder what your thoughts were on this. I’m short the dollar via euro and A$. Your thoughts are helping me to keep my views as un-biased as I can so thanks.
    • RP
      Raoul P. | Founder
      20 September 2017 @ 15:17
      Hurricanes cause insurance companies to repatriate capital to pay for the losses so that does have an effect and may well be pronounced as the claims come through. I also dont use the exact date for the HIA as its the trading around the dates that matter...pre-expectations, actual flows and then over speculation towards the end which can shift past the closing date. Its the nuance that is important and not to look for model-like rules.
  • RP
    Roberto P.
    20 September 2017 @ 13:57
    From a long term perspective, given all the analysis you have done in the US pension fund problems, it feels to me that depreciating the USD and pushing pension fund to invest heavily abroad could do the trick in order to solve the problem. What do you think about that ?
    • RP
      Raoul P. | Founder
      20 September 2017 @ 15:15
      the 8 year bull market in the US didnt help...its the low bond yields that are causing the problems,
  • lD
    lance D.
    20 September 2017 @ 14:09
    Yo ! nice and timely cheers .. If dxy Breaks 92.40 can i have permission to short the f$%k out of oil ?
  • RP
    Roberto P.
    20 September 2017 @ 13:53
    Raoul, you have said that USD tend to perform well on a strong or weak US economy. But in the last few months, every time we have weak data from US the USD is crushed and hike probabilities goes down. US share of global GDP growth is also less then it used to be and Asia's share is going up. Could it be different this time ? Weak US growth => Weak USD ?
    • RP
      Raoul P. | Founder
      20 September 2017 @ 13:56
      its possible but really the data has not been weak enough to attract safe haven capital flows or repatriation
  • RP
    Raoul P. | Founder
    20 September 2017 @ 13:42
    So, lets see how it pans out today. Please be careful of spikes (up or down) as the FOMC comes out...
  • JV
    Jason V.
    20 September 2017 @ 00:09
    Raoul, Thank you for another excellent and timely piece of research. As a side note, regarding your fantastic recent interview with Kyle Bass and the 'long volatility' trade. I would be very eager to hear your thoughts on expressing this trade via long XAU/AUD. This set-up was originally mentioned by Nancy Davis on RVTV. Long gold, short the Aussie in a 'risk off', high vol environment does seem a good approach, but I'm keen to hear your opinion. Many thanks.
    • RP
      Raoul P. | Founder
      20 September 2017 @ 12:47
      I tend not to try to overcomplicate a view, especially when you are just putting a trade on as a tester.
  • DP
    Devraj P.
    20 September 2017 @ 03:13
    RP. How do you see the stock market react in both situation?
    • RP
      Raoul P. | Founder
      20 September 2017 @ 12:46
      Likely on BS shrinkage, the market falls and then rallies again. I dont yet see timing for equity shorts.... its coming but I dont have a decent risk reward set up.
  • RT
    Ricardo T.
    20 September 2017 @ 03:35
    Just so I understand the trade clearly, are you suggesting the buy UUP order should only be placed after Sep 20 and only if it breaks above $24 ("it is the closing price below $23.70 that will nullify the potential opportunity")?
    • RP
      Raoul P. | Founder
      20 September 2017 @ 12:45
      No, just buy it on a break of $24.
  • SB
    S. B.
    20 September 2017 @ 06:47
    Is the UUP trade interesting if you already own Euro's? Switching Euro's to USD seems to give the same result.
    • RP
      Raoul P. | Founder
      20 September 2017 @ 12:45
      Sure, you can use whatever currency pairs you prefer.
  • AS
    Armando S.
    20 September 2017 @ 03:20
    Thanks for the the timely piece. The setup does seem good. I'm wondering if you have an opinion on a JPY vs USD short. Unlike long DXY and the possibility of catching a knife, the short, med & long term term term trend based on simple return momentum is currently in on the side of short JPY/USD (long usd/yen). Carry is also a bit more of a tailwind for this setup. Thanks!
    • RP
      Raoul P. | Founder
      20 September 2017 @ 12:45
      I like that too but it is driven by different factors such as US rates
  • JL
    J L.
    19 September 2017 @ 21:06
    Thanks for the timing and detail of execution, this adds a lot of value to the product so keep the articles coming with irregular frequency if you have to. One question that comes to mind is whether the heavy euro weighting of the DXY worries you, as Julian has pointed out a potential scenario of both EUR and USD strength? Any thoughts on a straight out JPY short? Cheers
    • RP
      Raoul P. | Founder
      19 September 2017 @ 21:13
      I think people should be free to use the currency of their choice. I use the DXY as that is what my technicals are based on, so it should reflect the trade i am expressing. Broad indices are not tradable for most.
    • MM
      Michael M.
      20 September 2017 @ 03:36
      No but the currency shares ETFs (and their options) are available to everyone. FXY (Yen, has options) FXB (Pound, has options) FXE (Euro, has options) FXC (Canadian Dollar, has options) FXA (Australian Dollar, has options) FXS (Swedish Krona, has options) FXF (Swiss Franc, has options) FXSG (Singapore Dollar, no options) FXCH (Chinese Renminbi, no options)
  • PJ
    Paul J.
    19 September 2017 @ 21:34
    Elegant & clean setup.
    • PJ
      Paul J.
      19 September 2017 @ 21:38
      Any concern of hurricanes negatively impacting data or confidence?
    • RP
      Raoul P. | Founder
      19 September 2017 @ 21:55
      Yes, that is the risk but as the trade wont set up unless it breaks out, this should be mitigated.
    • PJ
      Paul J.
      20 September 2017 @ 02:18
      Okay--setup requires inertia whose momentum obviates hurricane/data risks. Interesting, thanks! Reminds me of crazy prints post hurricane Sandy.
  • B
    Bob .
    19 September 2017 @ 21:42
    Your case is well laid out, including good entrance levels and risk mitigation strategies. Thanks.
  • RM
    R M.
    19 September 2017 @ 21:21
    Thank you!