Sometimes during the heat of battle, I am unable to send out Trade Alert Updates, giving the logic behind my positions.
Yesterday was one of those days.
In rapid succession, I knocked out short positions in the Euro (FXE), (EUO), US Treasury bonds (TLT), (TBT), and the S&P 500 (SPY), (SH), (SDS). I would have bought the (VXX) if I?d had more time.
All three positions are making money today, the Euro hugely so.
I think the fix is in. Fed vice chairman Stanley Fischer showed his hand a couple of days ago, when he remarked about the Fed?s economic targets needed for a rate rise drawing near.
Fed speakers will talk up the chance of an interest rate rise all the way until their September 20-21 Federal Open Market Committee (FOMC) meeting. They will then do absolutely nothing.
By then, all of our positions should have expired at their maximum profit point.
So until then, you can expect the entire yield play space to trade sideways best case, or get battered worst case. That?s all we need for this position to work. Today, they are getting battered.
Higher interest rates are great news for the US dollar and terrible for all other currencies.
Interest rate differentials are far and away the largest driver of foreign exchange markets. It sets up a great carry trade whereby traders can short Euros against the greenback and earn a large positive spread.
In the meantime, Europe will continue to signal that their rates will stay lower for longer.
Their economy is far too feeble to do otherwise. Now the Euro strength of the past two months is substantially eating into their exports.
Rising dollar : falling Euro sounds like a trade to me.
The same logic applies to the (SPY) and (TLT) trades, both of which will be damaged by rising rates.
In addition, the technical outlook for the Euro looks particularly dire. Look at the charts below, and you see a head and shoulders top within another head and shoulders top.
Not good, not good.
A dive below $1.10 for the Euro is a chip shot and is already well underway. A break below $1.00 is possible, but not until 2017.
I just thought you?d like to know.
