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How To Play the Current Dollar Pullback And Identify Its Reversal

The new year is not starting out well for the US Dollar. After blowout jobs and spending data for November, and hopes for a better than expected holiday season, expectations for increased pace and extent of stimulus exit and rate increases prove unfounded.
Key Points Concerning the US Dollar
 
On January 8th: Non Farms Payrolls -85K vs. forecasted -10K to 35K:
Meaning
Trend is still showing a bottoming out in job losses, and November was revised to show an actual slight gain. It is possible December too will be revised higher to show few losses. But actual sustained job creation now recedes into the more distant future, as do rate increases.
On January 14th:
·         Core Retail Sales shows -0.2% vs. forecasted +0.3%
·         Retail Sales prints -0.3% vs. forecasted +0.4%
·         Weekly jobs claims rise from to 444K vs. 438K forecasted and 433K prior month
·         The drop in continuing claims from4.807 million to 4.596 million mostly reflects expiring benefits
Meaning
The peak retail season proves a bust. Higher sales volumes and numbers of shoppers came at the cost of deep discounting and reduced margins. Classic gift items like electronics, general merchandise and clothing fell most. Restaurants also suffered, apparently as shoppers needed available cash for gift purchases.
No further respite for the US dollar downtrend until next month's job and spending data (the key metrics the Fed is watching for deciding the speed and degree of QE withdrawal and rate increases.
What Could Reverse the US dollar Decline:
 
·         A sustained series of fear events ( like stock crash)  
·         Events undermining the euro (ongoing downgrades or defaults in the Euro-zone)
·         Drop in foreign demand for US debt, forcing up long term interest rates, and thus mortgage rates. The likely result could be another wave of default mortgage defaults followed by another credit market seizure and financial sector led deep stock pullback. Both would be painful but both would benefit the dollar as rising rates and flight to safety give it a boost.
 
 
 
These are very real possibilities, though timing is hard to gauge and most likely will come as surprises to most of the market.
 
 
What To Do Until One of the Above Events Occur and Risk Appetite Holds
Consider the following longer term holds (not as short term trades).
·         Long dollar hedges for the coming months at least via forex ETFs: FXA, FXE, FXC, BNZ, UDN
·         Long forex pair positions: EUR/USD, AUD/USD, NZD/USD. Note: These tend to be traded short term, but can be held for longer periods as long as one does not use excessive leverage compared to your available equity, or keeps appropriate stop loss orders on them.
·         Short forex pairs: USD/CAD
·         Long assorted precious metals and energy plays
·         One of My Personal Favorite Solutions: Income stocks with relatively high, safe yields that ideally pay distributions in non-USD currency or are tied to such currencies or hard assets, or otherwise have pricing power to keep dollar distributions at pace with inflation. Even if markets tank, you probably continue to get your income. Most of these have very steady income streams, though the energy producers will see their revenue streams and ability to sustain dividends rise and fall with energy prices.
o   Dollar Hedged Income Stocks: Earn or pay out in other currencies: These include: BP, E, VE, ESCOF.PK BRP, CEL, FTE, TEF, ERF, PEYUF.PK PVX, VETMF.PK ESIUF.PK INRGF.PK, MCQPF.PK, GLHIF.PK, ATGFF.PK , PMBIF.PK , ATLIF.PK, KMP, ERF, CDPYF.PK NPRUF.PK RIOCF.PK BLIAF.PK CMHIF.PK
o   Dollar Based Income Stocks: Though they pay in US dollars, the top US based Master Limited Partnerships (MLPs) have enough pricing power from their quasi monopoly status to keep distributions at pace with inflation: BPL, EPB, EPD, ETP, EMP, MMP, NS, OKS, SXL, ARLP, NRP, PVR, and TNH.
For the sake of brevity, I've omitted recommended buy levels for now.
 
Disclosure: Author long the above income stocks, forex ETFs.