Fight the Fed When It's Priced In, Buy the Dollar (UUP)

They say 'don't fight the Fed' and while this is very wise advice, it is also foolish to assume that the trade is always alive and well. The dollar has been in a steep freefall for several weeks as the market assumes a large dose of QE 2.0 is on the horizon.

I feel like I'm the only dollar bull in the entire world right now. I can't count the number of CNBC guests this week that I've heard say that the dollar is done in the short-term as QE 2.0 will crush it. Given its rapid decline I would say market participants are definitely pricing this idea in. Pessimism is about as extreme as it can get and I'm probably the only person who isn't wholly convinced a huge QE 2.0 package is just around the corner.

While I started a little early in buying the dollar I have held the pain the last two days as the DXY Index made new lows. But, today's reversal after Bernanke's speech this morning gives me a very clear bottom to trade against now. I am taking my stand as of today. If today's lows are subsequently taken out, I will be convinced I was wrong on this trade idea. Otherwise I'm long and strong and looking for much higher prices over the next several weeks.

See my previous posts on the dollar:

Contrarian Trade: Buy the Dollar (UUP) - October 11, 2010

Thinking about Shorting the Euro, Buying the Dollar (FXE & UUP) - October 3, 2010


Brandon R. Rowley
"Chance favors the prepared mind."

*DISCLOSURE: Long UUP.