(Source: Bloomberg - Past performance is not indicative of future performance.)
If I overlap the moves seen in 2000 for the year vs what we are seeing now it seems this analogue suggests if history were indeed to rhyme then we could follow the 2000 playbook and start to see a period of USD drawdown, before another leg higher. It feels to me that the risks are now skewed for a weaker USD, at least in the short term.
The question is which currency to sell USDs against?
I do see scope for USDJPY to trade to 128 perhaps 126, but I favour EUR – if equity markets do rally, then the AUD, CAD and NZD will outperform but the EUR has defensive qualities being a funding currency. So, it should work fairly well if we see equity drawdown, but participate on the upside, and we’re hearing commentary from ECB officials that a 50bp hike at a future meeting could be warranted. I like this into 1.0800 but could squeeze higher, before another leg lower. I will cut if we see a close below 1.0341, which naturally gives me a lot of risks and so position sizing should be minimal. Trade the possibility with Pepperstone.