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Weekend Thoughts. I agree !!!!!Hi Traders,US Dollar – What in the Heck is Going On!? If you’re like me you are asking yourself the same question as the title of this article. First, the Dollar got smoked, like Janet put a hold on rates indefinitely, and then just like that it’s as if nothing ever happened. And while it isn’t unusual for markets to quickly retrace Fed day moves, it is unusual to make multi-year type intra-day price swings (Euro, I’m looking at you) and retrace the entirety of it in less than 24 hours. The reaction in equity land was considerably more muted, and while commodities made a big USD related move, they didn’t get put into a full nelson like currencies did. Which is surprising. At first glance.When you consider, though, how incredibly long Dollars is right now it starts to make a little more sense. Big positions breed price instability, and when a trend is as extended as it is right now it won’t take much to get the ‘Johnny-come-lately’ crowd nervous. Futures markets show the market longer than ever, by a lot.Putting the current Dollar run into historical context, only the initial surge in the 1980’s bull market was sharper. While the fundamentals greatly differ from then and now the reaction by the market to its present environment is very similar. The first leg up in the Dollar Index (DXY) during the 80’s lasted 10 months, gaining 30%. We are currently nearing the end of the 9th month and the DXY has tacked on just over 24%.To be clear, I believe we are in the beginning stage of a secular bull market, but with that belief also comes the understanding that the resolve of the market will get tested at some point. In 1981, the Dollar took back nearly 40% of the initial move, declining by a little over 10% before marching higher.The sharp gains and massive positioning of the market come at an interesting time, because the market is looking for higher rates to come at some point starting this year, and from where I sit that seems to be a ridiculous notion. The Fed has lost its patience, right? I doubt it.The Fed has a two pronged mandate of low unemployment and to keep inflation under control. Thus far, they have achieved their goal of low unemployment, but inflation – what inflation?They have a 2% target which continues to be a rainbow colored unicorn. The Fed’s inflation measure of choice is the Core Personal Consumer Expenditure index, or Core PCE for short. It is currently trading at 1.31%, and hasn’t been at target since touching it for a hot second back in 2014, and prior to that it traded slightly above for short period of time back in 2012. Now, I understand the whole concept of getting ahead of the curve, but until we see actual readings, at the very least, reaching the 2% target; how can they possibly sit there and suggest they will raise rates? We all know, too soon can be worse than too late. It’s all B.S. in my book. Maintaining status quo.Good Luck Trading.
