Ridge Capital Markets | Apr 26, 2016 04:12AM ET
In yet another week of central bank meetings, traders are supposed to place their bets based on expectable words and their effects, more than actions.
With the Federal Reserve being expected to leave its interest rates unchanged on Wednesday, and with the Bank of Japan being expected to expand its easing measures even further on Thursday, four things are obvious:
So, while this is sure to be another week of conflicting central bank statements, we believe that paying attention to particularly disturbing facts can pay off handsomely. In practical terms, Ridge Capital Markets believes that the currently impressive net short position of hedge funds against the USD and the current net long position of hedge funds for crude oil is about to face a mean reversion.
While this week may still keep the USD more or less underwater (in case Yellen does make dovish statements, since a rate hike is clearly not within anyone’s expectations), we nevertheless see the USD showing a very resilient pause in the DXY, and we see oil losing its steam and production-freeze-headline-fueled position.
That’s why we believe going long USD/NOK is a profitable trade: the USD seems to be in a relatively stable pause of its bull market, which can be reignited by many events, namely by an expectable correction in crude oil, whereas the NOK is competing against the EUR to stay as low as possible, and is likely to see a lot of pain as soon as the crude oil meets reality once again.
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