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POSITION: Long US Dollar (UUP), Short Euro (FXE)

If you are in this game for real, you will get run-over. I did for three days this week. Lessons were learned.

Three days, fortunately, does not a career in risk management make. The best you can do after you get yard-saled at center ice is to pick up your teeth, go back to the bench, and get ready for the next shift.

We did that yesterday. We shorted the Euro and bought the US Dollar Index. Yes, these are immediate term TRADE calls. But, remember, all TRENDS start as TRADES. It’s the job of the macro story teller to outline why the direction of price momentum can continue.

Dollar DOWN and Euro UP – are you kidding me?


Don’t forget that only 7 months ago, when the Street was parroting their “Euro Parity” call, we went the other way. Currencies are baskets of one another. The US Dollar can go up if the Euro starts going down – sometimes it’s that simple.

Why could the Euro go down? Well, re-print any Euro “parity” sellside research that’s 6 months old and you’ll have plenty of reasons – it’s all associated with sovereign debt default risk and, as of the last few weeks, European CDS and sovereign yields (selectively) are at a bare minimum flashing amber lights.

How about Euro PIIGS printing moneys? QE-EU? Part Deux? Every central Fiat Fool for dem-self, eh.

The other 3 reasons why the US Dollar could continue higher in the immediate term are: 

  1. Mean Reversion
  2. G-20 meetings in Korea next week
  3. Obama on a 10 day roady w/ Asians who are right p.o’d 

Oh, and dare I mention that little critter that’s ruined pretty much every emerging market at some point in human history – inflation. That’s a catalyst too.

The immediate term TRADE support line for the US Dollar Index is in the chart below (right where we bought it yesterday). Immediate term TRADE resistance is up at $77.08. In other words, the USD could easily put on a +2.2% mean reversion TRADE to the upside and nothing will have changed the quantitative setup.

A breakout above $77.08 puts the $80.46 range in play. If you were to only ask Mr. 10 and Mrs. 30 year US Treasury Yield what they think about that, they’d agree. Like the “parity” call of 6 months ago, let the storytelling about how Bernanke will never allow the currency of the American citizenry to survive begin.

Macro musings from a man who is nursing his black eye, but with all 10 of his bare knuckles intact,


Keith R. McCullough
Chief Executive Officer

Buck Breakout? US Dollar Levels, Refreshed - USD index 6 months