I’ll open a long in the USD as by macro I expect a rate hike this month or early next year because of the following things:
1- Inflation is at 1.6%, close to the 2% that the FED has stablished as a perfect inflation rate. Recently OPEC has agreed (or at least they are in advanced talks about it) to cut oil production, so inflation will boost as oil prices are going up because of the lower production.
2- At the same time, the higher price per barrel will boost USD demand at the begining (until demand stabilizes). That also applies to other oil exporters such as UK and Canada, so long CAD and GBP (GBP is a really delicate trade right now with the brexit process, but I expect the UK to pay a yearly fee in order to retain access to the EU market).
3- Unemployment (well at least the unemployment rate that the FED uses to decide how’s the US economy doing that’s not the real unemploment rate but that’s another story that I will discuss in another post) it’s at 5 years minimum. So that increases the probability of a rate hike.
4- Donald Trump reforms will boost inflation, as he is expected to boost public infraestructure spending and even reform some taxes to boost spending between other things. So that boost in inflation will force the FED to hike rates in order to control it.
We also have the fact that Trump is hawkish and he is likely to force Yellen to hike.
On the other hand we have the fact that US equities are in historical highs and Yellen may be afraid to hike and provoke a ‘market crash’ (not a market crash like in 2000 or 2008 but a 15% drop is possible).
We also have the fact that a rate hike would hurt some companies that already are in trouble such as Tesla, the US oil industry or even emerging markets, as they are indebted in USD. But in m opinion inflation will lead the way to a rate hike.
That will also affect soft commodities prices as a stronger USD will make it more expensive to buy them and will erode demand. But at the same time I expect soft commodities sellers to improve their performance as the will earn more money (at the end of the day demand has a minimum point that can’t be passed) and commodities buyers such as Starbucks to perform (obviously) worse.
Note: my technical analyst has said that it would be better to wait for a pullback in the USD before opening a long.