There's not a word the dollar bears say that I don't agree with, but the EU has all the same problems PLUS the design flaw of how it's structured, and since the Euro is 57% of the DXY, if the EU monetary union comes undone, the dollar goes boom to the upside.
Betting on the dollar going down is betting against the entire history of humanity. Humans in power always do whatever is most advantageous to them in the short-term, regardless of the long-term consequences to anyone who is not them, and the Euro acts as a restraint on politicians to do what they do best: lie, cheat, and steal other's people's money for political favors and unrealistic promises to voters to stay in power. So the logical conclusion of the restraint of the Euro on the European politicians is they will break it just like the restraint of gold was broken. Politicians must be able to spend without limitation so the voters can steal from future generations to pay for their pensions, entitlements, and feasts of free! So being bullish the Euro is betting against human nature, but a successful trade is direction and timing, and this is the kind of fundamental idea that can get you into trouble without a technical guide to manage the risk, so the question is: where is this idea wrong?
EUR/USD monthly. While this has a year or so before it's boxed in, I believe this will break to the downside on a continued fracturing of the Eurozone over the coming years. If right, the reward is thousands of pips to all-time lows.
Here's the zoomed in view of the weekly chart. There are three levels where I'm looking for a reversal and four dates when I'm looking for it to happen: this Wed the 26th is Fed day; Thursday, Oct 25th is ECB day; Thursday, Dec 13th is ECB day; and Wednesday, Dec 19th is Fed day. You'll note there are dueling H&S bottoming patterns trying to emerge on both. I'd call the Euro neckline to be at 1.1880.
Here's the DXY. I don't pay any attention to the summer spike shakeout. The neckline breakout level is 95. And the best risk/reward is if a reversal happens to form the right shoulder, particularly on one of those central bank meeting dates. The H&S pattern failure happens if the dollar takes out the left shoulder low at 91. I don't believe that's how this will play out, but you have to know your levels.
An interesting hedge is to be long oil in half size against a long dollar position, mostly because the political/geopolitical dynamics in the oil market could keep a bid under it even in the face of a stronger dollar, and if it reasserts it's traditional inverse relationship, it makes a decent hedge until the dollar breaks out.
Gotta go. On a personal note, I did end up buying a small business on July 25th. This is so contrarian that I can't even say it out loud because it's cringe worthy, but I'm betting on the power of intuition to triumph over rationality. I'll be happy to tell the story after I spike the ball in the end zone, not before. Till next time...
