Bank of Canada governor Stephen Poloz is giving a speech this afternoon (12:15pt) titled “Let Me Be Clear: From Transparency to Trust and Understanding” that will be scrutinized closely for any hints as to what the Bank of Canada will do with rates at its next meeting on July 11th.
What I’m doing: I took profits Thursday on my short NZD/USD position and bought AUD/USD looking for a short term correction in the USD rally. AUD looks really oversold on technical and sentiment indicators. I also bought YEN Thursday thinking it might rally for 2 reasons, 1) short term USD weakness and 2) it might catch a flight-to-safety bid if US stock markets roll over.
May 29/30 was a Key Turn Date for Market Psychology...a date when the Euro currency “bounced back” after looking into the black hole of an Italian inspired existential crisis...a date when prices of a number of different markets registered sharp reversals as contagion fears surged and then subsided.
Market Psychology had a classic “Risk Off” profile early this week as the “existential crisis” unfolding in Europe rallied the safe havens (USD, Swissy, Yen, Treasuries, German bunds) while the Euro, stocks, commodities and peripheral European bonds were dumped.
EUR/USD has dropped from over 1.25 to below 1.17 (~7%) in the last 9 weeks...closing this week at 7 month lows as political/economic developments in Italy herald a potentially existential crisis for Europe as “contagion” fears start to creep into the market.
“It doesn’t matter until it matters and then it really matters!” was how I began my April 21 TD notes. My point was that rising American interest rates were REALLY starting to matter in the foreign exchange world...and that was going to drive the USD higher. The USD index is now at a 5 month high, up 6% from its February lows.
President Trump will reapply sanctions against Iran. China has been told to reduce their trade surplus with America by $200 Billion within 2 years.
Three Main Themes: My trading over the past few months has been in line with three main themes: 1) US interest rates had been too low for too long and were going up, probably more than the market was pricing and definitely more than interest rates in other countries, 2) the US Dollar got too low and would start rising and, 3) stock markets got too high and would have at least a correctio
The Commitments of Traders data recently showed that speculators were holding a “record sized” short position in silver futures. This fact had everyone forecasting an "inevitable" short squeeze that would cause a huge upside rip in silver prices as speculative shorts ran for cover.
The US Dollar surged higher again this week as American interest rates continued to rise. The 2 year US Treasury yield is at 10 year highs...the 10 year Treasury yield hit 7 year highs (3.04%) mid-week before dropping back below 3% by Friday.