Go Big or Go Home - Long DXY at 80.10, Target: 82, stop @ 79.46

The DXY is sitting just above a big trendline coming from mid 2011, and given how worried the market is about a potential slowdown in the US economy (more likely it is just about weather effects), the risk reward looks attractive. On the other hand, EUR is more than 50% of the Index, and being the case that the ECB is very behind the curve, especially because medium-term inflation expectations have been coming down (5 year inflation swaps are trading at multi-years low), the currency should find a hard time breaking the 1.3800-50 level. Finally, positioning in the currency looks relatively clean, specially vs low yielding currencies (most of which are in the DXY).

I am targeting 82 as a possible level in the near-medium term, with a stop around 79.46 level. (almost 4:1 risk reward)

Volatility is finally moving

During the last few weeks, we have had some developments that have pushed volatility higher (as shown in VIX in the chart below) including the mini crisis in EM, deceleration in China, and doubts about the strenght of the recovery in the US. Even if it would be difficult to see volatility much higher, everything points to a season of bigger moves in all of the asset classes.

I would stay long USD vs EUR and CAD.