Although last week brought important data, including the nonfarm payrolls report, and some market moves, the more significant development was a change in the foreign exchange market. We had previously believed that the dollar faced the risk of a substantial decline, against the backdrop of what we saw as the weakening U.S. military strength and overall national power demonstrated by its strikes on Iran. But with recent moves in the U.S. bond market proving increasingly difficult to control, there is now reason to suspect that maintaining the dollar’s relative strength would better serve the United States’ broader interests. From a technical perspective, the dollar may also be entering a new phase.
The U.S. Dollar Index is an important reference point for assessing the dollar and the broader FX market. In the first half of this year, sellers repeatedly tested support at a 10-year trendline, without success. With both the new monthly and weekly candles breaking above the June high, the overall technical structure has begun to turn bullish.
$美元指数(USDindex.FOREX)$ $做空美元指数-PowerShares(UDN)$ $欧元主连 2612(EURmain)$ $英镑主连 2612(GBPmain)$ $日元主连 2612(JPYmain)$ $加元主连 2612(CADmain)$ $HK人民币主连 2612(CNHmain)$ $SG人民币主连 2612(UCmain)$
In our view, this pivotal shift in the balance between bulls and bears reflects an alternative response to the problems in the U.S. long-term Treasury market—problems that rate hikes cannot resolve. Although only one part of the stock-bond-FX complex is currently showing signs of trouble, and equities still look exceptionally strong, further rate hikes and other developments could trigger a rapid pullback. The FX market, by comparison, is less volatile, and stabilizing the dollar’s purchasing power could also help prevent a further loss of confidence. The shift in focus from bonds to FX may therefore mark an important macro turning point.
Of course, we must also watch whether the euro, as the dollar’s counterpart in the currency pair, confirms the move. In the previous phase, the euro’s rises and falls showed some divergence from the Dollar Index at their respective tops and bottoms, ultimately proving to be bull and bear traps. In the latest pattern, the euro has clearly completed its topping process—a head-and-shoulders pattern—and has continued to fall after breaking key support, largely establishing a bearish trend. With the yen also persistently weak and making new lows, the dollar’s two main counterparts are both under pressure, making a bullish view on the Dollar Index all the more compelling.
Our earlier short-dollar trades had mixed results, but the broader thesis behind them was a bearish view of the dollar. With the latest changes, we naturally need to adjust our directional stance. Over the coming period, our main FX approach will be to look for opportunities to short the euro when the dollar pulls back.
A stronger dollar could also lay the groundwork for weakness in risk assets. Cryptoassets and U.S. stock indexes, however, remain under the bulls’ control, so we need to wait patiently for a reversal before entering trades. Cryptoassets’ value as a leading indicator has not changed.
Finally, a brief look at the latest rate-hike outlook following the nonfarm payrolls report: changes in the data have, for now, removed the risk of an October hike, but a 25-basis-point hike in December still looks unavoidable. Since rate hikes cannot resolve the problems in the bond market, there is considerable uncertainty over how Warsh’s team will respond next year, after two hikes have been completed this year. If geopolitical trouble and complications surrounding the midterm elections flare up in the fourth quarter, a return to rate cuts next year cannot be ruled out.$CME比特币主连 2610(BTCmain)$ $比特币ETF-iShares(IBIT)$ $以太坊ETF-iShares(ETHA)$ $以太币ETF-Fidelity(FETH)$
Last week, our long euro position, entered at an average price of 1.1472, was stopped out at 1.1360. This week, we will begin placing orders to sell the euro: limit sell orders at 1.1310 and 1.1510, a stop-loss at 1.1680, and targets at 1.09 and 1.03.
For crude oil, our long position with an average entry price of 75 previously reached its first target of 95, and we took profit on half the position. The stop-loss, raised to 88 last week, has not been triggered and remains in place. The next target is 115, where we will close the remaining position.
If the protective stop on the oil long position is triggered, we will place new buy orders: limit buys at 83 and 75, a stop-loss below 67, and a target of 115. The orders will remain good till canceled (GTC).
New this week is a conditional crypto sell order: sell Ether if it falls to 2645, with a stop-loss at 2795 and targets at 2350 and 1850. The order is valid for this week. If Ether rises above 2795 first, we will cancel the order.
P.S. If a trade reaches its first target, the stop-loss will automatically be moved to the entry price. Any changes after an order is filled will be covered in subsequent articles.
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