Rude Awakening

I should be happy this morning as the Dollar finally produced a bounce after a largely upbeat jobs report last Friday. However for one that bounce is already in the process of reversing plus several of my open campaigns are either in the process of reversing or were taken out of the game. Let’s review where are and where we’re heading:

The DX futures show the type of bounce that usually leads to a bit of follow up. But – given the relentless six month long sell off preceding it I am unsure one positive job report will be sufficient to turn the tides here. Sellers have become pretty aggressive and the onus now is on the Dollar bulls now to produce a floor pattern.

Especially given the disastrous long term implications should they end up failing. As you can see on the weekly panel, there isn’t exactly a lot of technical support context holding things up. I expected a little bounce near 92.1 last week as a breach toward and perhaps even below 91 puts the Dollar into a world of hurt which promises to deliver until about DX 88 plus minus.

What should worry Dollar bulls the most is that the EUR/USD barely dropped and is still comfortably trading above 1.18. Remember that the EUR/USD is the most liquid currency pair representing over 30% of all forex trading activity. So if this one barely budges then the current bounce in the DX is most likely due to outlier weakness in some of the minor USD pairs. Thus I cannot help but be pretty skeptical about the potential of a rip your face off Dollar rally right now.

The USD/JPY is the second most traded forex pair and I’d be tempted to grab a long position if it manages to reverse a little and then paint a credible spike low. However as you already know, I will be watching the EUR/USD as well as the proverbial canary in the coal mine.

Meanwhile the loonie is one of those outliers I mentioned earlier and continues to refuse to revert a little so that I’m able to grab a seat on the bus. Annoying… especially knowing that once a forex pair runs it rarely looks back.

Gold got stopped out as anticipated – it’s now bouncing around above a cluster of daily support waiting for (Dollar) instructions apparently. I may be tempted to try a long position again but not here today.

The long term panel on gold is looking supportive, especially the weekly shown here on the right. But unfortunately gold has not made sufficient progress yet so that the current NLBL could act as a previously tested support zone. A pull back into 1244 is a distinct possibility should it wind up closing below 1258.

Silver is looking a lot worse by the way as it was unable to even poke its head above its 100-day SMA and a NLBL just below the 17 mark. The current daily pattern is one of lower highs and lower lows – not very positive, especially after failing the 100-day SMA.

Our Soybean oil campaign is still in the running but I’m giving it only a 50/50 chance of succeeding at this point. If the prior lows at 35.28 are being breached then this campaign is almost assured to be stopped out.

Crude seems less effected by the current bounce in the Dollar but our campaign has been sickly since the moment I jumped in there earlier last week. Apparently I chose a pretty good stop but that won’t help much if crude isn’t able to detach itself from the current trading range it seems to be trapped in. Long term however I think it’s looking pretty good here especially on the daily panel as the 100-day SMA is below and it’s starting to accumulate more context, e.g. the Bollingers are now starting to point up.

Finally our ZB campaign got stopped out at 2.2R which is respectable but IMO way too early for what I had in mind. We snagged a pretty fortunate entry here and it seemed like it was destined to challenge its upper 100-day Bollinger. The short term spike in the Dollar unfortunately threw a big monkey wrench into this one.

Lessons Learned?

On the surface it seems that avoiding being strongly beta to the Dollar across your portfolio in the future would make a lot of sense. Unfortunately however in the past decade almost everything now depends on central bank machinations and thus it’s almost impossible to be ‘delta neutral’ to the Dollar.

Plus let’s not forget that we did fairly well riding the Dollar down over the past few months as many assets started trending and some even reversed into a new long term market phase. So I guess we just have to accept the good with the bad, and perhaps in the future I will start reducing exposure more aggressively once I see the Dollar approach a new bearish or bullish inflection point where we should expect volatility across the board.