How funny would it be if the US Dollar Index $DXY peaked with the expectations of a 100 basis point rate hike last month?
And what would that mean for risk assets and the stock market rally?
These are just a few questions that float across my mind as I look through currency charts.
To be clear, the DXY isn't showing any signs of a top. Momentum remains in a bullish regime, and the index is holding above the upper bounds of its former range.
I’m not going out on a limb here and calling a top in the US dollar. Instead, this is all about execution and remaining receptive to all possibilities.
At the beginning of every month, we tune out all the market noise and zoom out. We zoom out, because these calls that are held in the first week of the month, focus on monthly charts. So we're basically looking at long-term trends.
Our Monthly Strategy Session Call concluded early this week. Premium members can access the call recording here.
For non-premium members, don't worry- we haven't forgotten about you! You can check out our posts highlighting the top 3 charts that month, in posts like these!
Non-members can get a quick recap of the call simply by reading this post each month.
By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends.
This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.
With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.
You probably think I say the same thing every week. That’s because I do.
Of course, I throw in a well-defined trade setup here and there, but always within the context of the dollar and its impact on the major asset classes.
It’s that important.
As the US Dollar Index rally is well underway, it’s interesting some individual USD crosses are finding resistance at historical levels of interest to both the currencies involved and risk assets!
Here’s a chart of the US dollar/Swedish krona cross zoomed out to the late 1990s:
But before you step up to the line to place your bet, you must have a plan – a set of rules rooted in risk management to guide you through your trade.
There’s no way to enter and manage a trade if you don’t know where you’re right, where you’re wrong, and where you’re taking profits. Without a plan, your strategy and philosophical approach to the markets don’t matter.
That brings us to the British pound.
Here’s a chart of the GBP/USD cross:
A few weeks ago, we outlined a short setup in the GBP/USD pair. The pound was breaking down to levels associated with the Brexit sell-off, and we wanted to ride that trend lower.
The chart below is the one I'm watching the closest.
You guys have been hearing me pound the table about the US Dollar and what a hard time stocks and crypto will (continue to) have in a stronger Dollar environment.
So here you have it. This is the Emerging Markets ETF $CEW back to the same level where it bottomed out the only 2 other times it was ever down here:
Investors have a lot of questions right now. With sentiment and at some of the most pessimistic levels in history, what will it take for some of these trends to change in the second half of the year? I believe some major trends are already changing.
The Playbook takes a step back and looks at things from a more Structural perspective. If you're specifically looking for more tactical opportunities, you can check out this week's Live Mid-Month Conference Call.
Here's what we'll be discussing in our Q3 Playbook: