The question I have been pondering lately, especially with the price movement on the Dollar and Crude last week, regards the short crude long dollar trade. Is it over? While there is no debate that the trade has lost some significance the past few weeks and there is slowing momentum in both the downtrend in crude and uptrend in the USD. It is not over. The underlying fundamentals of the trade has not completely changed, although it has been modified. The problem with the trade is the United States economy has slowed much faster than I originally expected. Look at the numbers:
1. ISM Manufacturing: 52.9 Miss
2. Retail Sales: -0.6 Miss
3. PPI: -0.5 Miss
4. Consumer Sentiment: 91.2 Miss
5. Housing Starts: 0.90 Million Miss
6. Existing Home Sales: 4.88 Million Miss
7. Durable Goods: -1.4% Miss
8. Final GDP: 2.2% Miss
9. ISM Manufacturing: 51.5 Miss
10. Unemployment: 5.5% with 126k new job created. BIG MISS!!!!!
That is just a sample of economic reports over the last month and has put pressure on the value of the USD. These misses have offset the European damage and discussions on whether or not there will be a Grexit.
The USD pain train to the rest of the world is not over, however, it has slowed and as always, trade with caution, control risk through position sizing and never take a position size over 1-2% of the portfolio in currencies.
One last thing you can always do is trade the economic events with a small position on a pair that you are not trading in a longer term to offset potential risk to the economic event.
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