UPDATE: Well as I said in this piece, I usually wait to see how a crossroads plays out. I took a stab at this one and Super Mario showed me who was boss. He managed to still be dovish despite math making it pretty clear where QE ends. This triggered a true technical breakout in the dollar and breakdown in the euro and there is a lot of offsides traders out there so I flipped back to being long the dollar. The truth is the dollar has broken out against a lot of currencies this month and if The Donald picks Taylor and/or gets some tax reform...the dollar could really move higher. I think the Fed chair and taxes are small compared to the structural issues but not to traders right now. Brent Johnson of Santiago Capital posted a great summary of some of the structural issues. I got cute thinking the euro had one more shot left in it but feel better being short again. I will ride this at least until positioning balances out more.
The US dollar is at a very important juncture right now. After falling for half of the year and then rallying for the past couple of months, the dollar has broken its down trend but is struggling to break out. Currently as seen on the $DXY chart, price is above its recent trendline and sitting at the neckline of a potential inverse head and shoulders.
The ECB will decide the fate of the dollar this week, which will serve as a catalyst for most asset classes in the weeks ahead. So, this is a really important week to say the least. Below is a look at EUR/USD which is naturally a mirror image of the dollar index. I think the blue rectangle area roughly decides the fate of the pair for the next few weeks. The chart is ugly but has not broken. If the ECB comes out a bit more hawkish than expected (I have no clue) the EUR may rip out of this potential head and shoulders area.
This is a rare case where I have a bit of an opinion as we hit a crossroads. I tend to let these things just shake out and join the new trend but on this one I feel like the ECB will surprise and the EUR will restart it's advance higher toward 1.25. The reason I feel this way is simply the other markets I watch closely are suggesting this to me. This could all easily be wrong and the dollar could keep marching higher. I have been a fundamental dollar bull for a long time but the charts for oil, agriculture, and other commodities are telling me to be careful being long the dollar right now and I have to listen. I flipped my short EUR trade to a long EUR trade with my stop just beneath that blue rectangle. It is a small position and I will add to it if I am right and the EUR is able to advance and break this range and potential head and shoulders. I have noticed a myriad of charts that appear to be whispering lower dollar to me but I will share just a couple in the interest of time. Below is the weekly chart of $VEGI which is an agriculture play. This looks desperate to breakout to me.
Below is $DBC which is a catch all commodity ETF which has looked very healthy as of late and looks to be trying to break a couple of important horizontal levels after taking out a trendline with a nice retest to boot.
Like a lot of ags and other commodities, oil has been performing well recently and is nearing an important technical break. Oil has looked great to me technically and fundamentally for months and if this area breaks we are headed to $53.50 before real resistance hits.
NOTE: this is a daily of the 2018 contract
What is obvious here is that all of these charts show the ability to reverse and break their trends if the dollar is able to trigger it's head and shoulders bottom and add to its rally. If so, the advance in commodities, bond yields, and thus my portfolio will at least have to take a breather. This week will have a lot to say about the months ahead for the world of finance. See you soon Mario.
A couple bonus charts below...10 and 30 year bond futures and something that would certainly break out on a rising EUR and rising rate environment in Europe (or so I would think)...Credit Suisse (I am a buyer).
Credit Suisse with EUR/USD overlaid for reference: