USD is at at the center of everything right now. It dropped and the global anti-USD trade bounced, as expected. We targeted the 200 day moving average on USD if a breakdown below support at 94 occurred but noted in NFTRH 518 that it could be subject to an interim bounce in the buck.
Said bounce is on and we need to check the status because if a bounce becomes something more, the implications are considerable for global assets and some US sectors. Pre-US open USD is poking above its SMA 50 at 94.97. If it reclaims the SMA 50 and holds it the breakdown would be eliminated; and if it rises above 95.68 it would be re-bulling.
On reflection, last week’s drop may just have been an equal and opposite reaction to the Trade War instigated upside action in August. In other words, it may have been a process of eliminating that distortion. Regardless, since we are bullish on the buck longer-term I think that it is wise to have a level of caution until USD either breaks down again or bulls again.
With the strong USD long-term yields are dropping this morning (yields often rise in support of a weaker currency).
I have tried to be sensitive to the interest rate and currency backdrops in my positioning; especially after our update showing the herd so firmly on the ‘bond bear/rising yields’ side of the boat. Part of this meant liquidating some of the anti-USD holdings like China and commodity producers and adding pro-USD/anti-yields (more or less) areas like BioPharma and Airlines (all per the Trade Log).
After this week’s FOMC meeting, safer cash equivalent SHV (T Bills) is paying out yet another .25% and in a high risk market* cash equivalents are a very valid position.
* The US stock market is high risk, but remains firmly bull trending even with this morning’s futures in the red. Also, according to the seasonal that we reviewed in early September, the month was due to end poorly.
For reference, here is the October seasonal, which starts well. After October the ‘buy in November and sell in May’ cliche kicks in.