We have two seemingly equally plausible views for the direction of the US dollar; i.e. key juncture time we suspect.
Comdols appear relatively cheap, but no doubt would suffer on a big “risk off” event. The euro and yen (plus swiss) have been playing have roles, yet that could change quickly, at least for the euro; though it makes sense for the yen to continue to appreciate from a haven standpoint.
But, the fact is the dollar has been grinding around with little in the way of pack correlation; i.e. some days euro strong and comdols weak. Some days euro strong and comdols strong. You get the point. So, maybe the play is to pair commodity currencies against the euro if you believe the dollar index grinds higher?
As you can see, our thinking is all over the board. Solidly on the fence we are with a slight nod to our primary view—the US dollar goes higher; but confidence is low. If we through out the fancy technical stuff, and return to basics, one can see in the first chart below the dollar index has for the most part been putting in higher highs and higher lows. The is positive price action despite the grind.
So, which horse to ride?
Primary - The dollar rallies on growth and yield differential and quite possibly gets a major “risk bid” should stocks fall out of bed, so to speak.
2. Alternative - Maybe the Fed starts cutting rates much faster than Mr. Market expects, signalling zero-bound is in the cards, quickly denting the dollar’s relative yield advantage, and/or Mr. Trump decides he wants the Treasury to start intervening in the FX market, selling the dollar (But does he really want euro? Thus, yen the likely play here.) This may be enough to tank the US dollar suggesting a major top is in place.