Ignore Navarro comments, EUR short story intact

Trading started out quiet enough today, but after the Financial Times reported on Donald Trump trade adviser Peter Navarro's comments on a "grossly undervalued" euro today, EURUSD quickly shot up from 1.07 to 1.0813. The pair is currently trading at 1.0799.

Let's be reasonable for a moment though: The inflation outlook for the euro zone does not support any immediate EUR strength ("base effects"), Mario Draghi's ECB is still broadly dovish, and the year 2017 brings plenty of political risks for the currency bloc with tricky elections in the Netherlands, France and Germany. On the other side of the Atlantic, the Federal Reserve is prepping for as much as three interest rate hikes that should, in theory at least, support the US dollar. In fact, if Trump's economic stimulus works out well, the Fed might even be inclined to hike rates faster or more often. Let's not forget that central banks are independent, either! Trump and his advisers have no real business telling anybody that their currencies should be revalued higher or lower, and if they do, the recipients of that message have absolutely no obligation to obey mighty Trump's orders (even if they come in form of a Tweet, which to my surprise has worked pretty well for the president so far).

What should a trader make of this mess? We must surely brace ourselves for an increase in two-sided volatility during the next few months to come. Any comment from Trump, Yellen and Draghi will violently and without warning push both EUR and USD pairs in either direction. The same goes for news about populist parties in Europe gaining support ahead of this year's elections. JPY pairs will be affected too, because the Japanese yen is still a typical currency for risk-on and risk-off trades.

Looking just at EURUSD, I believe the EUR has no real supportive story going for it for some time to come. Comments from Trump's adviser team won't change that. The euro zone has lots of homework to do, and a possible trade war with the U.S. won't help, either.

Resorting to technical analysis, it is true that the charts look slightly more supportive after today. In the daily chart above the pair managed to break out of its downtrend, which started in November 2016, and in the monthly chart it even jumped back over the long-term upwards trendline support going back to 2002 (second chart above). In theory, a monthly close above the trendline would signal that the previous break lower was indeed a false break, especially since EURUSD failed to permanently trade below the March 2015 low at 1.0458 (red dashed line).

Everything else is still telling me that the EUR short / USD long story is intact, however. As mentioned above, I don't attach a lot of value to Mr Navarro's comments anyway. It's more significant to me that EURUSD further decoupled from interest-rate differentials today (I think it will revert back soon) and that speculative EUR shorts ("smart money") have declined yet another week. That means market positioning is less extreme, thus permitting another extended move lower.

Open positions as of 31/01/2017 9:17pm CET:
EURTRY short from 4.0524, unrealized return: -0.26%

Realized YTD return: +0.7% from 2 trades
Total YTD return: +0.44% from 3 trades

Short-term: USD long view challenged

I'm still waiting for that ingenuous trade idea to pop into my head. Everything seems to be challenging my USD long view right now - at least in the short run.

Given that lack of inspiration I'm turning to a country that's known for being just as neutral: I like the EURCHF chart below. Nice trendline that's been confirmed a couple of times since 2007.

Open positions as of 18/01/2017 9:00am CET: Flat

Realized YTD return: +0.7% from 2 trades

GBP down as market braces itself for hard Brexit

I've lost conviction in my EURUSD long trade which I opened at 1.0646. I still think the pair has potential to go up to 1.07-.08 but there's no real momentum, so I'm looking for opportunities elsewhere. Closed trade at 1.0608 to realize 0.36% loss.

Sterling got pummeled during the Asian trading session as market participants are pricing in the possibility of a hard Brexit ahead of Theresa May's speech on Tuesday. I'm seeing a low of 1.1986 on BBG but with GBP short momentum still intact it wouldn't be surprising to see cable go for its "flash crash" low in the 1.1752-1.1841 range. (When it comes to flash crashes, data become somewhat unreliable. Depending on which data feed you're using and which brokers/banks are contributing prices to the feed, you will see different lows. Thin liquidity is another problem with quoted prices recorded during flash crash periods.)

Open positions as of 16/01/2017 9:00am CET: Flat

Realized YTD return: +0.7% from 2 trades

Dollar Index quarterly chart since 1964

I've got no new trade idea today, so I'm posting this quarterly chart of the DXY going all the way back to 1964. Although I'm currently short USD vs EUR following the ridiculous Trump presser, I still expect a stronger USD in the medium to long term.

Whether the DXY will test its support at 100 first or turn around and go straight for the 105 handle depends strongly on what Donald Trump and his cabinet will be doing after 20 January and how quickly they will go about it. We already know they're set on repealing Obamacare as soon as possible, but market participants are still waiting for details on Trump's promised economic stimulus package. Needless to say, pressuring American companies into adding more jobs in the U.S. is one thing, delivering real change across the board will be far more challenging.

I'm not expecting any big moves in the USD before the inauguration and hence my short-term target in EURUSD remains 1.0700-20.

DXY QuarterlyOpen positions as of 13/01/2017 1:04pm CET:
EURUSD long from 1.0646, unrealized return: flat

Realized YTD return: +1.06% from 1 trade
Total YTD return: +1.06% from 2 trades

Selling USD vs EUR & TRY

Following yesterday's disastrous Trump press conference I'm buying EURUSD at 1.0646 with a first target at 1.0720 (trendline from 2002). I'm also selling USDTRY at 3.81. Originally, I was going to buy TRY vs EUR to pick up carry but with Trump being the clown that he is I'm hoping for USD weakness in the short term.

Update 3:50 PM CET:
USDTRY short closed at 3.77 for quick 1.06% profit, EURUSD long still open