Surfacing from pup training to share two words on currencies. I was prompted by a DM this morning from a sub who follows EM ccys very closely, and by the price action this morning/late last week, which to me has evolved in favor of seeing some USD softness soon. (Just look at today’s intra-day reversal in silver.)
I have posted below his question (pretty sure my assumption that the sub is a ‘he’ is correct) and my brief answer. Please feel free to follow up with questions in the stream or in DMs.
“Hi Mark, what is your best estimate of when a short USD / Long EM position is tradable? I take that this is to some extend data dependant and we probably need to see a bit more softer US data to conclude that the top is in for rates and the USD, but given the sharp corrections we have already seen in certain EMs, I am starting to getting increasingly tempted. Do you have any thoughts in terms of the timing here? Cheers!”
“Hi. So, first one has to specify if we’re talking about a trade or a position. And if you are looking to position EM ccys, you have to start with what your current weighting relative to your benchmark/mandate/risk tolerance is. I would want to be modestly overweight here from a strategic POV. So, if you are underweight EM ccy, it makes sense to add here IMO. Need to leave room in case the EM unwind goes further (easily could), but I think the levels and the dynamic warrant adding. If you are flat, you can still start here to get overweight, but, again, make sure you leave room to add. On the tactical side, makes sense IMO to take a shot here at being more aggressively short USD, but with stops in mind/in place. Yes, for a short USD position to really run the data would have to cooperate somewhat, but the positioning and psychology is at least now somewhat favorable to try short USDEM here.”