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POSITION: Long UUP, Short FXE

 

One of the most enjoyable aspects of evolving my investment process from Global Consumer in 2003 to Global Macro today has been having the opportunity to un-learn, re-think, and re-learn.

Being right on a currency move is a lot different than being right on what Bill Ackman is going to allegedly file on next. Maybe that’s why my batting averages are higher trading currencies?

Whatever the interconnected reasons for our successes trading the US Dollar over the last few years, we don’t want to break something that doesn’t need fixing, yet. There is absolutely no doubt in my mind that day will come – and maybe soon – but until it does, we’ll call the last 17 long and short calls we’ve made on the US Dollar Index what they are  - alpha.

From a risk management process perspective, for us to stay long any security for an extended period of time, that security needs to be bullish on both our immediate-term TRADE and intermediate-term TREND durations. The US Dollar Index currently remains bullish on both. 

  1. TRADE signal = November 4th where we bought it
  2. TREND line support = $78.70 

The question now is whether or not the US Dollar Index can breakout to higher-highs on a long term TAIL duration?

Luckily, we don’t have to answer that question today. In the immediate-term, the best we can do is measure the last price, volume, and volatility in our model in order to come up with our most immediate-term TRADE lines of upside resistance (in the chart below we show that line at $80.98).

All the while, of course, we are coagulating all of the fundamental data we can legally get our hands on, including the fundamental TRENDs in other FX that have an impact on the USD Index basket (Euro, Yen, etc…). In addition to being long the US Dollar, we are short the Euro (FXE).

The US Dollar is now up in 8 of the last 10 weeks and is confounding as many of the USD perma-bears today as the concept of “Euro-parity” confused those who shorted the Euro at the bottom of June, 2010. We like counter-cycle moves – and we love trading currencies.

A bullish currency TREND is bullish for America. Let’s hope that the official convening of the 112th Congress doesn’t screw this up.

Hope, after all, is not an investment process.

KM

Keith R. McCullough
Chief Executive Officer

Bullish On America: US Dollar Index Levels, Refreshed - 1