The end of the 3rd dollar bull run
Please start by checking the linked charts, where I explained each phase of this ranging market.
The dollar made a beautiful break above 100, and everyone seemed so bullish. What triggered this 3rd bull run?
1) good data from US
2) the prospect of further monetary easing from ECB
3) the promise of fiscal stimulus that would accelerate the economy and would eventually push the FED into a more aggressive tightening cycle
4) the approaching interest rate rise from the FED (is there anyone that did not understand in October that rates are going up in December?)
5) the Italian referendum on constitution reform
6) Brexit, although this was a while back, but I had to include it, as it was probably this year's main event, and the dollar got some traction from it.
Now let's think about each of these reasons, one by one:
1) Data from the US has been pretty good lately, NFP over 150k which was the target imposed by Yellen, the only data slacking was wage inflation. In my opinion, US data is the only reason for caution ahead, because although the Fed under Yellen is all but aggressive, market expectations of future rate rises might get crazy.
2) A further increase in the duration of the asset purchase program from the ECB is widely expected, the dollar is already at new multi year highs, or better said, was. Probably a buy the rumor, sell the fact (what's weird is that European stock markets have not advanced in this period).
3) A campaign promise is a campaign promise. Even if Trump delivers, don't forget that the FED took a small one year break between two interest rate inceases, while the economy was in decent shape. Until Trump gets in office and delivers his fiscal reforms, there's enough time to see a decent correction in the dollar.
4) Rates are going up, it was obvious since the October meeting, an interest raise is fully priced by the market.
5) I'm no expert on politics, but the idea of Italy leaving the Euro Area due to the resignation of Renzi and the possible succession of The Five Star movement to power is pure nonsense. Has anyone looked at EURUSD today?
6) There's a saying in my language, 'it's smoked already', meaning it doesn't matter anymore. Brexit is smoked already, and has been for some time.
With all this in mind, why would I want to hold dollars in the near term? The chart is a perfect snapshot of this reasoning. A triple top with divergence, false breakout, and a possible future evening star pattern. Today's price action speaks a thousand words.
Short the mighty dollar and be patient.
The dollar made a beautiful break above 100, and everyone seemed so bullish. What triggered this 3rd bull run?
1) good data from US
2) the prospect of further monetary easing from ECB
3) the promise of fiscal stimulus that would accelerate the economy and would eventually push the FED into a more aggressive tightening cycle
4) the approaching interest rate rise from the FED (is there anyone that did not understand in October that rates are going up in December?)
5) the Italian referendum on constitution reform
6) Brexit, although this was a while back, but I had to include it, as it was probably this year's main event, and the dollar got some traction from it.
Now let's think about each of these reasons, one by one:
1) Data from the US has been pretty good lately, NFP over 150k which was the target imposed by Yellen, the only data slacking was wage inflation. In my opinion, US data is the only reason for caution ahead, because although the Fed under Yellen is all but aggressive, market expectations of future rate rises might get crazy.
2) A further increase in the duration of the asset purchase program from the ECB is widely expected, the dollar is already at new multi year highs, or better said, was. Probably a buy the rumor, sell the fact (what's weird is that European stock markets have not advanced in this period).
3) A campaign promise is a campaign promise. Even if Trump delivers, don't forget that the FED took a small one year break between two interest rate inceases, while the economy was in decent shape. Until Trump gets in office and delivers his fiscal reforms, there's enough time to see a decent correction in the dollar.
4) Rates are going up, it was obvious since the October meeting, an interest raise is fully priced by the market.
5) I'm no expert on politics, but the idea of Italy leaving the Euro Area due to the resignation of Renzi and the possible succession of The Five Star movement to power is pure nonsense. Has anyone looked at EURUSD today?
6) There's a saying in my language, 'it's smoked already', meaning it doesn't matter anymore. Brexit is smoked already, and has been for some time.
With all this in mind, why would I want to hold dollars in the near term? The chart is a perfect snapshot of this reasoning. A triple top with divergence, false breakout, and a possible future evening star pattern. Today's price action speaks a thousand words.
Short the mighty dollar and be patient.
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