Macro Monday: US dollar reversal? — #SaxoStrats
- US data nonfarm jobs data released on Friday beat expectations
- Equities have hit fresh highs on Wall St
- Iron ore spot prices have made gains, giving the ASX a lift
By Kay Van-Petersen
Summary of the past week
- Strong US data on Friday. Beat in Headline and Average hourly earnings.
- China Caixin leading indicators beat strongly, global outlook off to a strong start.
- BoE turns dovish, cuts growth but keeps options open for rate hikes.
- Equities: new highs in US, Eurozone up and Asia mixed.
- Forex: DXY reversal on Friday off US data, NZD lagging. USD basing.
- FI: US slightly wider, bunds close below key 48-50 basis point level.
- Commodities: Mixed, iron ore continues to fly. Silver hurt on US data.
- There was no report; this will resume next week, when Ole Hansen returns from leave.'
- Key Focus: Friday US Inflation, Thursday RBNZ
- Central Banks: RBNZ 1.75% e/p (August 10) PH 3.0% e/p (10) MX 7.00% e/p (August 10)
- Fed Speakers: James Bullard (August 7), Neel Kashkari (August 7/August 11), Dudley (August 10) Kaplan (August 11)
- Other: Hols AU & CA (August 7), JP (August 11), RBA Lowes (August 11)
- US: JOLTS, Inv., PPI, CPI 1.8%e 1.6%p CORE 1.7% e/p (out on Friday) .
- China: FX Reserves, TB, CPI +1.5% e/p, PPI +5.6%e +5.5%p, New Loans .
- Eurozone: Regional IP & CPI JP: Tertiary Data UK: House Prices, Manufacturing Prod, TB
- Australia: Home Loans .
- New Zealand: 2 year CPI Exp., Manf. PMI, Food Prices.
My main thoughts remain unchanged from the previous week
- QE: going in inflationary; going out deflationary? This has not been the case
- North Korea: saying “the time for talk is over”. Huge risks.
- Forex and FI divergence cometh: Unlikely to stabilize at the current levels, have added FI to this divergence idea.
- Jackson Hole meeting: Potential for Mario Draghi disappointment, strategies that KVP would be skewed would favour euro downside, Eurozone rates lower (higher bunds) & Eurozone equities higher (due to lower Euro, potential delay in QT).
- Remember ECB started quantitative easing three year after the Fed, much bigger risk to them getting out of it sooner rather than later. Draghi does not want to repeat a Trichet.
- Tactical Long Call baskets: USD bottom picking trades, USDSGD and USDCHF ATM 4 month expiries. AUDUSD calls (Med-Long term Commodities bull play, can also look at long AUDNZD expression), 10yr Bond Future puts (more long-term & titled towards the US), XLE energy ETF calls (Continues to lag and ignores big run up in oil over last few weeks, as well as Venezuela getting past boiling point.)
- Dollar Index: Weakness in DXY yet bounces off 200 week moving average. USD at triple bottom formation. Expect gains this week. Resistance at 95.00 level, support at 92.5
- EURUSD: Closed below 200 week moving average; sell rallies towards at 11797, then 1.1818; 1.1840 and 1.1866. Long term view unchanged major bull market.
- USDCAD: Buying momentum, 1st weekly gain in 5 weeks. Upside target at 1.1237.
- AUDUSD: AUD finds difficulties at 200 weekly, 2 weekly failures. Support found at 0.7890 and then 0.7783. buying level around this key level
- USDJPY: Closed below 200 week moving average; important this week to get above ¥111.33 for USDJPY to gain further.
- S&P/ASX200: Choppy sideways trading, unlikely to change, a break above 5800 or below 200 DMA. Would set the trend.
- S&P500: pendant triangle formation, currently breaking out. Setting up a move to 2495 target. Expect S&P higher this week.
- XAU: breaking above long term 2011 downtrend previous week. Now retesting that line. Must hold or a move to $1230/oz expected. Buying zone at that level.
Global macro books
- Tactical: Close AU Bond Futures and Nikkei Shorts. Open: Short Nasdaq; Long USDCHF; USDSGD longs. (See additional comments in deck)
Global macro books (continued)
- Strategic: Close: Long GBPUSD. Open: Long Swiss equities; USDCHF; Long USDSGD. (See additional comments in the table)
Here is this morning's recording of this week's Macro Monday call.
– Edited by Robert Ryan
Kay Van Petersen is Global Macro Strategist at Saxo Bank. You can follow him on Twitter: @SaxoStrats or @KVP_Macro. Please join us live for next Monday's Macro Call at 0830 [Singapore/Hong Kong], 0930 [Tokyo], 1030 [Sydney].