POSITION: Long THE US Dollar (UUP)
We can be as patriotic about a position we are pushing as the next firm. After being short the US Dollar from June 7th to November 3rd, we’ve been long it since November 4th. THE question now is can a bullish TRADE become a TREND?
In Hedgeye speak, a bullish immediate-term TRADE = 3 weeks or less and a bullish intermediate-term TREND extends itself to a thesis with a duration of 3 months or more. The current global short squeeze for US Dollars is 4 weeks in the making (this is the 4th consecutive week where the US Dollar Index is up on a week-over-week basis), so the question now is do we book a nice TRADE or make the case for the TREND.
Since US Dollars are priced relatively to other dysfunctional fiat government currencies like the Euro and the Yen, the good news for US Dollar bulls is that there’s always a case to be made for continued relative weakness in the competing currency basket. Admittedly, the European Sovereign Debt news-flow is overshooting to the bearish side at this point and we’re positioned to book part of that TRADE.
We covered our short position in the Euro (FXE) today as it is finally immediate term oversold. We have not, however, closed out our US Dollar (UUP) position as we continue to think that the Pain Trade is to the upside.
The Fundamentalist’s next question on why should be what’s your catalyst? My answer = PRICE. Yes, when immediate-term price momentum starts to morph into a potential intermediate term TREND, price can be the most important catalyst. The conclusion is that simple – you just need to get the timing right.
From a pain threshold perspective, one critical PRICE line to monitor from an intermediate term TREND perspective = $79.71 (see the chart below). If the US Dollar can close above and confirm what was TREND line resistance ($79.71) as newfound support, I may be knocking at your door in Connecticut for a Thanksgiving caroling of the Canadian version of God Bless America.
Go US Dollar!
Keith R. McCullough
Chief Executive Officer