FreeDXY5 min read
The dollar smile is flattening
DXY
Delayed
The thesis
Dollar strength needs either a US growth surprise or a global risk event. Absent both, carry does the work and the dollar drifts.
What I'm watching
- Rate differentials at the 2y point
- Cross-currency basis
- Positioning in the CFTC data
Positioning
Watch, 4-8 weeks. Conviction: Low. FX trends persist far longer than they should. Don't fade early.
Opinion, not investment advice. The author may or may not hold positions discussed.
Opinion. The author may or may not hold positions discussed. Not advice. Not a financial promotion approved under FSMA s.21. Quote data is delayed. Past performance is not a reliable indicator of future results.
Comments
27 commentsThe second point is the one most people are going to skip over.
Following on from that —
Right, but consider the second-order effect.
Which is exactly why the timing matters.
Fair, though that assumes the base case holds.
And if it doesn't?
Then you're sized wrong, not wrong on direction.
That's the distinction I was reaching for.
Agreed. Leaving it there.
Yes, and I'll post an update if that level goes.
Good timing — was just reworking my DXY sizing this morning.
This is the right question. The answer changes the whole setup.
That's the part I keep going back and forth on.
Fair, though I'd want to see it hold for another week before sizing up.
Reasonable thesis but I think DXY is priced for most of this already.
Been waiting for someone to write this up properly. Thanks.
What would make you exit this?
I'd push back slightly: the base rate on that is worse than it feels.
I'd push back slightly: the base rate on that is worse than it feels.
Fair pushback. I'd agree if positioning were more extreme, but the flow data doesn't show that yet.
Fair, though I'd want to see it hold for another week before sizing up.
That's the part I keep going back and forth on.
Same read here. The risk is it takes longer than anyone wants.
Any read on how this interacts with the broader DXY complex?
Sizing is roughly a third of a normal position until the thesis confirms.
Good point — hadn't looked at it that way.
Fair, though I'd want to see it hold for another week before sizing up.