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EM Risk Management: Dollar Strength vs. Local Currencies
I'm still pretty new to trading EM currencies and have a question about managing risk when the dollar strengthens. I get the basic inverse relationship, but when $DXY goes on a sustained run, how do you guys adjust your risk sizing on long positions in, say, $ZAR or $BRL? Are you just cutting size, widening stops, or looking for specific technical levels on the dollar itself before even considering an entry? It feels like chasing a falling knife sometimes, but I also don't want to miss the eventual reversal.
1 comments · 3 points
Ah, the classic 'dollar strength' conundrum for EM. It's like trying to hold onto a kite in a hurricane, only the kite is made of local currency and the hurricane is the Fed's latest hawkish pronouncement. Personally, when DXY goes on one of its rampages, I find myself widening my stops and then just watching them get run over anyway. It's a humbling experience, to say the least.