This Chart Suggests Folks Are Calling Bullsh*t On The Dollar Rally

Ok, so the euro had one of its worst days of the year versus the resurgent dollar on Friday.

On the heels of a double whammy (the upbeat jobs report and jawboning from Cohn about tax reform) the broad dollar surged, and after a furious ascent, the euro finally rolled over:

EUR1

And indeed, it looks like this was long overdue as the dollar was the most oversold since 2007 on at least one measure:

Dollar

But don’t forget what’s coming up. We’re staring down Draghi at Jackson Hole and believe it or not, the news on the Mueller investigation actually got worse last night as The New York Times reported that the Special Counsel has now formally asked the White House to hand over documents for the first time.

So if you’re looking at EURUSD, you kind of have to ask yourself this: is it realistic to believe that the possible announcement of Fed balance sheet normalization is going to be enough to offset i) Draghi telegraphing/ announcing an ECB taper over the next several months, and then ii) an almost inevitable deterioration of the situation in Washington?

If you ask three-month risk reversals, the answer to that question is “no.”

EURUSD3MRiskies

That’s still the most bullish sentiment since 2009.

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2 thoughts on “This Chart Suggests Folks Are Calling Bullsh*t On The Dollar Rally

  1. No idea on the short term, but I believe the Euro will cease to exist during the next serious recession in Europe………the Southern Countries, and maybe France will be looking for huge infusions from Germany, and Germany will say fuggedaboudit.

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  2. There are huge head winds coming for all fiat currencies as the debt piles up the printing will be fast and furious. China will probably be best suited to with stand the inflation that will run out of control when the bond vigilantes show up.

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