I’ve based most, if not all of my investment decisions around the performance and perceived outlook of the US dollar. It has certainly been a fairly consistent marker of global risk appetite versus risk aversion for as far back as I can compare financial data with the macro-economic narrative of the day. I have recently completed a full turnaround of my foreign exchange portfolio from net long dollar to net short dollar. The trading decision to turn the portfolio around was based on technical signals from my charting software, and the analysis it allows me to perform of the prices of my preferred securities. The conviction to initiate and follow through with the reversal comes from a compilation of my interpretation of my trading signals, and the evolving macro-economic environment.
My technical analysis of the price movements of a few dollar exchange rates have highlighted several consistencies with some trading signals and the directional magnitude of the market outcome of macroeconomic data and information. Though the individual currencies in the portfolio paint their own pictures of their respective economies on the ground relative to the dollar, the index acts like a weighted average for comparison. This average represents the sum of all greed and fear in international capital markets. In a nutshell, as of recently, the signals that I have been interpreting from my technical analysis have all been pointing to international capital markets that are finding fewer and fewer reasons to be fearful of the near-term macroeconomic environment. With this easing of sentiment, the dollar will lose its allure as a safe-haven in exchange for rising foreign yields.
The picture painted by my technical analysis of my charts tends to coincide with the macroeconomic narrative that the Federal Reserve and most market commentators seem to subscribe to. It is worth mentioning that as before, the mistiming of a macroeconomic insight and a financial market decision making has left me needing to actively manage my hedging efforts while I wait for the rest of the party goers to realize the festivities are over.