My thesis for the first quarter of 2021 will be for USD to go higher. My main reasoning is higher 10Y treasury yield. Of course the Fed can do YCC to tame it down. My bet is as long as there is no material shock to the S&P, they will allow yield to drift higher, especially after Biden's massive fiscal plan. Let's assume it will pass in some shape, way and form.
My second reasoning is extreme positioning. Tom, Dick and Harry's brother in laws are short of USD. Normally, it reverses when the positioning is this extreme. I wouldn't even be surprised when ECB,BOJ are starting to jawbone their own currency.
As this is my first post, I keep it short and sweet. Any thoughts? feel free to chime in
Just an update on my post a couple of weeks ago, it seems the price action is starting to reveal itself. I have posted a DXY chart below. It broke the resistance yesterday. I expect the commodity currency like the Aussie, Kiwi and Loonie will start to fall with respect to USD. Furthermore, as people dialling down risk due to GME circus show, I could see this as a meaningful correction, going forward. As always nothing is guaranteed, so let's see
You make some good points I think. I noted that legendary investor Jim Rogers has mentioned several times over recent months he's holding a lot of USD - and he looks very comfortable with that position. Obviously Raoul P has also held similar views through 2020, so there's that.
My thought from there, is if you are long gold - as I am - how best does one hedge against the dollar and or T yields drifting higher ?
My thoughts on gold is actually slightly bearish, I have posted here real yield which is at the moment is -ve as it was during 2012-2013 period which coincides with gold previous high. And answering your question with hedging your gold position, you could possibly sell an upside call option to slightly hedge your long gold position. Speak to your broker.
Actually i've been thinking the same , the hedge i've added is a steepener via longer end in ED curve. if yields continues to drift up, curve gets steeper hedges the overall reflation portfolio while staying duration neutral.