USD Strength Remains While Equities Hesitate April 8, 2015
USD Strength Likely to Continue Even If Stocks Slump
Yesterday in the London session training room I was talking about the USD strength. Some members had seen articles saying that the recent move was more likely short coverings and would be short lived. Well to a degree they were correct but if the USD carry trade is unwinding on a larger scale this is just the beginning of a massive short cover. I did some research to find the article I was talking about in the room and found it this morning. However I was wrong about how long ago it was I saw it thinking it was two months or so since I read it. Well it was posted on March 19, 2015 so the chance of a decent percentage of the unwind being finished is just about nil. I have posted the most relevant parts below.
The Fed and other Central Banks are trying to maintain the illusion that they have everything in control by talking about interest rates, but the reality is that the US Dollar carry trade is ABOVE $9 trillion in size. That is almost as big as ALL of the money printing that occurred between 2009 and 2013. And it’s imploding as we write this. Globally, the world is awash in borrowed money… most of it in US Dollars. The US Dollar carry trade is north of $9 trillion… literally than the economies of Germany and Japan COMBINED. When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.
In short if this carry trade unwinds at a higher rate soon the USD strength will be one of those knock on effects to the extent that the strong dollar forces short coverings causing a stronger dollar. Cool huh? This may not be over for awhile.
EUR/USD Confirms Failed Second Push
Since the EUR/USD did confirm failure of the second push I will have a bias for the short today. The move yesterday also qualifies as a first long term push but I would be happier to see it come from the highs. The best level to short is up at the hourly 200 at 1.0870 but I will be open at the Asian highs of 1.0843 as long as it holds and drops to leave the Asian box closer to the lows. I am open for the long at yesterdays lows since this is just a first push but will need enough price action to change my bias.
GBP/USD Makes Second Intraday Push
The GBP/USD did make the second intraday push so I will have a small bias for the short today. However the better level is up at the daily low of 1.4869 where the hourly 200 is hovering. The Asian high and 1.4846 are valid but would be better if by the time London opens they are the same price. I will be open for the long since these pushes have just tested the 1.4806 level but would prefer a stop run to the lows yesterday.
EUR/JPY Holding Range For Now
I will be more open on direction on the EUR/JPY today. The intraday pushes do suggest a higher probability of a break to the downside but the UJ strength is holding it up for now. As long as price leaves the Asian box closer to its lows I will start looking to short at the Asian highs. Otherwise I will be waiting for 130.64. If it by chance shows some conviction then I will consider a backside entry during London. Otherwise as long as the lows hold I will also consider a long with a clean stop run to the 130.00 level.
Forex News Today
The calendar is slow during London with only Euro Zone Retail Sales figures. Its expected to drop below zero so anything above should be positive for the Euro even if its short lived on USD strength.
The US only has a Fed member speech that may be interesting since they are starting the QE4 dribble already. Otherwise the FOMC Meeting Minutes will only get a reaction if there is talk in there about weak jobs data and/or a deviation from what was said during the press conference after the last meeting. Of which I doubt.
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