As we move into the new year and the new Trump government coming into power in the US, the market is understandable very, very bullish with regard to the USD. With 3 rate hikes anticipated, company tax cuts and the consequent repatriation of USD’s and an increased demand for US equities who wouldn’t be!
The best market indicators (and don’t forget in FX we never know the whole story!) tell us that the market is indeed very, very long of the dollar. For instance net IMM positioning of UsdJpy shows that the market is now more long than it was short last year even when the market was at it’s most risk averse. The world and his wife have been talking the EurUsd down for the last few years and it’s been a tough trade to stay in but once again the market has flocked back to the short Eur banner.
Experience tells me that when we see these conditions, all it takes it for a slight reversal in expectation to see some drastic reactions in the currencies. So even though I’m not in favour of standing in the way of the moving train (freight train in this case) and I’ve made decent friends with trend over the years…..there should be some good opportunities for the contrarians out there over the next few weeks and months. As always timing and entry levels will be crucial!