The DeCarley Perspective Trading Newsletter
Get long the dollar with protection
****There is substantial risk of loss in trading futures and options.**
****Past performance is not indicative of future results**
On the radar:
The market expected taper, the Fed didn't deliver....the result was a QE capitulation. Time to get bullish the greenback?
Synthetic Trade in the DX Futures
The seasonal low for the dollar (and corresponding high for the Euro) is typically a week or so from now. However, given yesterday's massive (over) reaction to the Feds non-action, it seems like the dollar might be ripe for a reversal a little earlier this year.
The dollar index traded on the ICE exchange hasn't been this "cheap" since February of 2013 and is beginning to look attractive on the chart. However, it is possible we fall a little further to test support on a weekly chart moderately under 80. Accordingly, we aren't willing to catch the falling knife without protection.
We like the idea of going long a December DX futures contract, and then purchasing a November DX 80 put to limit the risk of the trade. Depending on fills, the total risk should be about $900 before transaction costs. This includes about $550 for the insurance and the distance between the futures price (about 80.35 and 80.00).
If the dollar drops again, we'll consider taking a profit on the long put and letting the futures contract ride.
If we are right and the dollar index finds footing, a 50% retracement of the recent drop would mean 81.70. At that point the futures contract would be profitable by about $1,350, but the protective put will have lost value to work against profits.
Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
**There is substantial risk of loss in trading futures and options.**