About The US Dollar

Today I'm not concerned with the EU bailout agreement. Nor am I concerned with the US debt deal for that matter (I just want to stay out of the way of rumor-driven trade). This post is all about the US dollar and what it might mean that it slipped below the July 4th lows. Obvious symbolism aside, it's not good.

As I write, the dollar index is currently trading at 74.35. The door is wide open now for a quick trip below 72.86, the May lows. The knee-jerk response would be to predict an upside surge in the stock indices and risk assets. I don't think it's going to be that simple.

Notice what happened the day Ben overtly hinted at QE3. The markets sold off sharply. There comes a point when smart money figures out that more stimulus means that the previous dose didn't work. I feel we're at that point.

Yes, we could see upside from here if the dollar tanks. I publicly wondered out loud yesterday about the possibility of an a-b-c-d-e triangle in the S&P targeting 1400. Is that bullish? Yes and no. It's bullish until you get there. Then what.

Then I think the correlations in effect from the year 2000 (weaker dollar, higher commodities and stock markets) will begin to break down as correlations eventually do. Non-confirmations will abound. The models will cease to perform. And things will get interesting for the interventionists.

The easiest trade in the world currently is to be short the dollar. The easiest trades have a tendency to disappoint.

Case in point, yesterday. I realized too late that when I trade without fear, I'm usually wrong. I had very little fear yesterday morning and bought too many OEX 595 puts that were quickly no use to me. And to add to the problem, I was not hedged. I missed a fill. Then I had to trade my way out of harm's way by being very aggressive in the face of fear with higher strike OEX 600 puts and hedging with long e-minis in order to stop the bleeding. I think I'm still adjusting to life without mercury overload (which is great otherwise). Today my goal is simply to trade well.