Quotes:
FTSE 5668
Dow 11020
EUR/USD 13485
GBP/USD 15879
Gold 1339
Silver 25.37
Crude 83.11
Xstrata
Everyone was bearish on the Dollar.I myself was beginning to think it was over for the dollar?! The technicals set themselves up, as the dollar held its support trend line from december 2009, then came better than expected economic indicators, worse than expected earnings from Cisco last week (bringing the dow lower), markets fearing another rate rise by China to curb inflation, fears over Irish debt repayments, a revision of outstanding Greek Debt. What more could you want for reasons to buy the Dollar?
So I bought the Powershares DB US Dollar Fund on Friday (and added to the position today), and today shorted Eur/USD (at 13513) and GBP/USD (at 15901) as shown above.
Having reached my anticipated level of 0.36% yield on the US 2 Yr, from my prior recommendation, I will be looking to see how the 2 yr trades, yield currently at 0.5%, and will be monitoring it for the possibility of further long positions.
Mervyn King has revised up forecasted CPI for mid 2011 to reach 3.5%, before later falling back to the 2% target, with remaining slack of high unemployment to be the driver of this. Regardless, I see the Pound as a strong currency, with our fiscal austerity measures, and CPI above what most economists anticipated, indicates the recovery in Britain is stronger than in the US, and potential for interest rate rises to be priced in by the market at some stage next year, are higher (not that I think those rate rises will come). So why am I short? Well, with the Euro crisis taking centre stage again, market sentiment is likely to favour the Dollar, and despite the UK being likley to maintain its credit rating, and not be too greatly affected by Bank holdings of Irish Debt (this year at least), fears of contagion due to trade relations and proximity are likely to take hold.
I am short the Pound in the short term, to target 1.55, and perhaps lower. However will most likely look to go long at osme point in 2011.
Trade Ideas
existing positions:
EUR/USD
I am contuing to hold my short EUR/USD position, to target 13400 in the short term (this week), and 13000 thereafter. Ideally I am looking to hold til 1.2 within the next couple of months.
Short EUR/USD 13513 Stop 13613 Target 1.34 in next 2 days, 13000 in next 2 weeks.
Stop is tight as risks are Ireland accepting a bailout, and market suddenly short covering, taking it to 1.38 and so on. However I would look to take on a new hsort position at this point most probably.
GBP/USD; short at 15901, Stop 16001, Target 15700 in the coming week, 15500 beyond.
Powershares DB US Dollar Fund; Opening 2270, stop 2230. Taget 2600.
Potential new trades:
1)What else? I am looking to go short the Dow, to target 10700, and the Ftse to target 5300. However I think there is the risk of sharp reversal in the Dow back to 11200 zone, given the trend of US indicators outperforming, and possible decoupling from the Eurozone news as well as divergence from the negative correlation with the Dollar, so it would have to be a close below 11,00. I have decided against it for now, however if the right expected risk/ reward presents itself, it may be a good opportunity.
2) gold at 1338, taken a beating since closing below 1370 on Friday with fears of the slowdown in China (with rate rises) and the upturn in the dollar affecting all commodities. Silver down from its high of $30, trading at $25.37 currently.
Potential trade;
Short Silver 24.90, stop 25.20, target 24.00
To combine with a small long position in Gold (as despite dollar strength, and bearish technicals, upside in gold is possibleon safe haven buying from EuroFears, perhaps that is why it traded back up from 1330, to 1340 in the latter part of the US market)
Long Gold at what I expect would be around 1320, 20 point stop, let it run as long as the Silver position is open. Good profit taking opportunites would be 1350-1360.
3)Long USD/JPY, having broken out of its wedge, and broken the 50 day moving average. USD/JPY at 8330 does look to be targeting 8500/8600. However the move up has not been as sharp as I would like, so I am keeping it on my wathclist for now.
4) xstrata at 13.11, a possible short if it breaks 13, to target 12, and possibly beyond to 11.50. to hedge myself against an upturn in commodities, and also play the fears in the Eurozone, I would combine this with a long gold position.
Short XTA at 12.97, Stop at 13.14, target 12
Long Gold 1339, Stop at 1315, Target 1350
I would weight the short Xta as twice the size of the gold position however, as I find the the probability of the gold rally less likely at this stage I feel.
