These two things worry me

Two things have begun to worry me about the strong USD story:

First of all, the implied probability of a March 15 Fed rate hike jumped from roughly 30% to almost 90% within a few days on no important news whatsoever. The biggest jump occured after Trump's address to Congress and comments by New York Fed President Dudley that the case for Fed tightening had become a lot more compelling. But come on, we've seen comments like that many times before. They haven't exactly been a reliable predictor of future Fed actions. I'm afraid the market is overreacting to comments by central bankers and politicians. An almost 90% probability of a rate hike amounts to a near-certainty expectation that we will see a hike in two weeks. The risk of disappointing that expectation is enormous.

Secondly, EURUSD has repeatedly failed to break through the important support level around 1.0520. While we would probably see an extended downmove to at least 1.0341 if that support were finally taken out, I must assert that a failure to do so would likely result in a similarly large move higher. This, too, suggests an increased risk for my EURUSD short position. I'm keeping the position on for now, but I'll probably close it out if the expected move lower doesn't materialize soon.

Open positions as of 02/03/2017 8:49am CET:
EURUSD short from 1.0795, unrealized return: +2.62%

Realized YTD return: +4.34% from 3 trades
Total YTD return: +6.96% from 4 trades

Staying USD long

Donald Trump's first address to Congress turned out to be uneventful. His "America first" motto shone through, but he managed not to say anything negative or too dopey. Everybody is still waiting for him to present details on how he is planning to implement the promised tax cuts or provide stimulus to the US economy. I stick with my credo that listening to Trump is a bad strategy; I prefer to watch out for actual implementations of what he promised. I've said this before: Ignore Trump noise. As such I also maintain my EURUSD short position as the overriding narrative of Fed rate hikes combined with economic stimulus and European election risk is still active. Support levels 1.0524, 1.0454 and 1.0341.

EURUSD Monthly 01/03/2017USDCAD looks constructive for a long trade targeting 1.3575. Technical analysis, continued USD strength & Canada NAFTA risk supportive. On my watch list.

USDCADOpen positions as of 01/03/2017 8:50am CET:
EURUSD short from 1.0795, unrealized return: +2.56%

Realized YTD return: +4.34% from 3 trades
Total YTD return: +6.9% from 4 trades

Fed on track to hike: USD long

Expectedly, Yellen didn't provide anything enlightening yesterday. The market realized the Fed is still on track to hike rates this year, with March being a "live" meeting (although the hike probability is not high by any means for that meeting). Perhaps traders are still remembering 2016 when the Fed didn't hike as often as had been expected. Traders should forget all about 2016! The Fed entered its rate hike cycle, and it will hike again. Traders should also pay less attention to Trump statements. Let's wait for actual implementations of his promises instead. Regarding his USD rhetoric, it's meaningless. If his administration will deliver on his stimulus promises, which I think it will, that will be inflationary and ultimately positive for the US economy, i.e. it will give Yellen & Co. even more reason to continue hiking rates. It will also be important for the Fed to prove it is an independent institution; the US president has no business pressuring his nation's central bank. Everything is playing into the USD long story at the moment. Don't let Trump noise fool you into thinking anything else.

EURUSD Short 15/02/2017

Quick look at NZDJPY: After I chickened out of putting on a NZDJPY long trade post-RBNZ, the pair is looking constructive again. Trendline support still valid. On hold but definitely interesting.

NZDJPY Daily 15/02/2017Open positions as of 15/02/2017 10:19am CET:
EURUSD short from 1.0795, unrealized return: +2.37%

Realized YTD return: +4.34% from 3 trades
Total YTD return: +6.71% from 4 trades

Expect nothing new from Yellen today

Fed chair Janet Yellen will deliver her semi-annual congressional testimony before the Senate Banking Panel today. I expect nothing new from her today. It's too soon since the latest Fed meeting on 1 February to change course, and the dollar is too strong to hint at a March rate hike, in my opinion. I maintain my EURUSD short position. By the way, US National Security Adviser Michael Flynn's resignation is a non-event for FX, ignore it.

DXY Index 14/02/2017Open positions as of 14/02/2017 08:45am CET:
EURUSD short from 1.0795, unrealized return: +1.77%

Realized YTD return: +4.34% from 3 trades
Total YTD return: +6.11% from 4 trades

Selling EURUSD at 1.0795

I have nothing new to add to my commentary on Navarro and the US dollar's strength from yesterday evening, but I'm putting my money where my mouth is: Sold EURUSD at 1.0795. This is not a near-term trade as I can see the pair going up to 1.0875 or even higher during the next couple of sessions (depending on Fed today & any Trump comments we might get), but in the medium- to long-term I believe the EUR short story will play out well. Read yesterday's post for details.

EURUSD short 01/02/2017Open positions as of 01/02/2017 9:38am CET:
EURTRY short from 4.0524, unrealized return: -0.56%
EURUSD short from 1.0795, unrealized return: flat

Realized YTD return: +0.7% from 2 trades
Total YTD return: +0.14% from 4 trades