caveat : my money is not where my mouth is.
Long USD, short gold, short oil, short the carry trade, and long equities, is a configuration that some people have been calling for a long, long time. Apart from the equities column these guys finally got their pay day. The media is and will always be filled with reasons for every daily price move but my rationale boils down to simple overvaluation. Why did price x go down today? Because it was too high would be my answer.
Until today, we had the rare case of several prices pretty much moving in a straight line, especially in the fx market. But today, what a turnaround. Look at that jump in cable. It rose by almost four big figures from open to close, the biggest daily rise in my memory. My favourite observation of the day is how EUR/USD rallied strongly but oil failed to follow. My old mind set would have said that oil has some ‘catching up’ to do on the upside, but I don’t believe this. My feeling is that this is a signal that oil is going to fall and the best a falling dollar can do will be to stabilise the price for a while, before oil has another leg down. Even if we get a short term bounce, I’d say risks are firmly skewed to the downside.
Broadly speaking I reckon the configuration has further to go, as momentum likes to surprise and prices have a tendency to overshoot everyone’s expectations, leading to analysts adjusting their forecasts in the trail. But talk is talk and I felt like blogging!