A Sure Trade?

As the decade closes on King Dollar (CHF is the only currency to have risen against the greenback since Jan 2010), USDX today posted its 4th biggest percentage decline of the year. The USD's fall may be explained away by most FX traders as a result of exaggeratingly thin trading conditions and lack of urgent USD funding. Taking a closer look, improving optimism on the US-China trade front combined with the Fed's persistent pumping of liquidity in the repo market are drawing up the key elements of a broadening “reflation” trade for early 2020. 

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Due to the gains in indices, JPY was a modest advancer against the USD this week. But the above chart opens ample opportunity for a catch-down selloff in the pair as traders in Western markets operate shadow staff and Japanese traders get ready to take off for the first 2 weeks of the New Year. USDJPY sustained selloffs of as much as 300-500 pips within minutes, in early January over each year since 2013. Falling US yields, recovering metals (led by silver, aluminium and gold) have helped bolster the reflation trade, while miners have outperformed bullion at the highest level in over 2 years. What could change? Fear of too rapid a rise in yields (as in Jan 2018), or a blow to the US-China trade narrative (or both). Our Premium NZDUSD trade hit its final target for 190 pip gain, paving the door for crucial new developments in the pair next week, when I will update my latest analysis on our GBPUSD trades (partly in profit) and EURUSD (110 pips in the green).