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#SaxoStrats
Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 16 May 2018 at 10:16 GMT

Macro Digest: Italian woes, USD strength and a North Korean rethink

Chief Economist & CIO / Saxo Bank
Denmark
By Steen Jakobsen

We're living in dangerous times where the hazards just seem to be increasing, from a possible Italian government comprising the populist and anti-EU blocs, to ever-increasing USD and yield strength to a North Korean rethink on Kim Jong Un's pow-wow with The Donald. Here's how I'm responding:

Action:
Long dollar vs. EUR, DXY, JPY, XAU for now…

Why:
Break higher in 2-year and 10-year US yield
Break of 12 month SMA in DXY, EURUSD, USDJPY, XAU
Increased EUR risk on the back of Italian polictics
Geopolitical escalation can work both ways but most likely for risk off…
Stop loss: 100 basis above EUR here – 1.1930 vs. 1.1835 now…..XAU above 1330/35.

Italy is now a big risk because of a potential new government

 A document leaked overnight to the Italian edition of the Huffington Post that purports to be a draft programme for government between the 5-Star and League, has, according to Reuters, unnerved markets. The document includes, inter alia, dropping Russia sanctions, a mechanism to leave the euro, changes to EU treaties and stability rules, and asking the ECB to cancel €250bn Italy's debt.  

Obviously, it is a draft and it has been leaked for a reason.. but it is still worrying. 

Might the dollar rally soon ebb out?

A technical break of a key long-term indicator, (the 12-month simple moving average), indicates the final leg of this US dollar strength correction…… 
capture
 

























Meanwhile, US fixed income broke big levels yesterday and the focus on Fed policy and the US deficit increases… 
treasury spread
 
Finally, overnight, KCNA, the North Korean Central News Agency, released a statement from the dictatorship's ministry of foreign affairs, saying  North Korea says may reconsider its summit with the United States. Looks like they didn't think much of secretary of state Mike Pompeo....

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