Comments on FX Intervention and the US dollar

Comments on FX Intervention and the US dollar:

We have heard from Fed Chair Powell. Accordingly, he seems to have signaled a rate cut at the next meeting is baked in the cake. And we should suspect it is already baked in the price of key asset classes and the FX pack.

But what is interesting is the background stuff; as usual. We have President Trump Tweeting about currency manipulation from both China and Europe. Explicitly we know China controls its currency, implicitly many suspect Europe (through ECB largess) does. We posted a story in the Members area from Bloomberg, suggesting bank analysts are starting to seriously consider a US intervention in attempt to weaken the US dollar. But, the key point is if no other central banks get in the game, i.e. it lacks any coordinated policy effort, any US intervention will likely fail. The market is just too big for even the world's defacto central bank to move its currency for more than a very short period of time.

Former Treasury Secretary Robert Rubin understood the currency game well; cutting his teeth as a trader at...wait for it....wait...Goldman Sachs (the firm that controls the world. :)) Rubin knew the market for FX was deep and liquid and interventions usually failed if not coordinated in a big way. Additionally, Rubin understood if a government wanted to intervene, the chances of success were much greater if said government waited for the currency to already have turned, or market sentiment suspected the currency already changed trend. It became known in the FX world as the "Rubin Rule" of intervention.

Fast forward to the Trump administration and the current global milieu. Global policy cooperation is close to non-existent and the US dollar (aka the Dollar Smile framework) is extremely competitive; i.e. the US economy is growing faster (it seems) and has a higher relative yield than its competitors. This is not the raw material of a successful intervention; it is the raw material for a fundamentally driven intermediate-term rally. And in fact, given the odds of failure, any attempt may lead to a big US dollar rally as the market loads up on dollars given away by the US Treasury.

If we add to this, the rising probability of yet more easing from the European Central Bank (ECB), the stage may be set for a big dollar rally as some worry about dollar weakness. Just the type of thing Mr. Market likes to see.

Link to Dollar Smile Framework: https://gallery.mailchimp.com/119a6a11c17b827a8c300117e/files/f3417d00-0782-4884-928d-c532c7465dbc/070619_Dollar_Index_View.pdf

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2019 Track Record Summary Year-to-date & June Detail

Based on a trading account of $25,000, we are up approximately 68% year to date. One losing month-May; we were down 3.7%. Largest draw-down was in April, at $2,134.

Year-to-date Summary

Assumptions : 1) Based on 1 (one) or 1/2 regular contract per trade idea; regular sized forex or 100,000 units per contract. 2) Assumes entry and exit of trading positions based on exact suggested levels indicated in original and follow-up issues (no slippage or commission).  Disclaimer: Futures, Forex and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future performance. Black Swan Capital newsletter services are strictly informational publications and do not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk.

Assumptions: 1) Based on 1 (one) or 1/2 regular contract per trade idea; regular sized forex or 100,000 units per contract. 2) Assumes entry and exit of trading positions based on exact suggested levels indicated in original and follow-up issues (no slippage or commission).

Disclaimer: Futures, Forex and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future performance. Black Swan Capital newsletter services are strictly informational publications and do not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk.

June 2019 Track

070119 June to date.png

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Has the buck bottomed? We don't know, but a plausible alternative says yes....

The buck has powered higher, well above our target today.  And it now leaves open the key question: Have we seen a dollar low; i.e. is this the trend move to 102 we have been targeting longer term now underway?

Effectively, we defined the low in our "alternative"  or secondary view we shared earlier in the week.  Here it is again below.  We shared this in a video update.  To summarize again, the low in the dollar index was at Wave c of (c) of [ii] and it represented what is called a "running flat" correction.  So, now, this view takes precedence despite the very extended US dollar index on a near-term basis.  We will have to watch the reaction from this powerful move today.  If a three-wave corrective, it suggest the trend move higher is underway and we have seen the bottom.  More on this on Monday.  

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Do we have one more push lower in the dollar before a big rally? Or is the bottom in?

We suspect we will see one more push lower in the US dollar index. But, it likely depends on whether or not stocks hold up. We remain open to the idea of a major risk-bid powering the dollar higher—which is our scenario for the next rally after a push down toward 95-level. However, said risk-bid could come at any time given the macro/political backdrop.

061419 dollar index.png

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