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 / 12 March 2018 at 2:25 GMT

Macro Monday: Countdown to the Fed's March 21 meeting — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub

  • Traders are focused on the Fed's upcoming March 21 meeting
  • There is a very significant chance of an upgrade in the dot plots
  • US CPI number is out Tuesday and the trade wars theme continues

By Kay Van-Petersen

Summary of the prior week

  • RBA, BoC, ECB, BoJ: RBA & BoC seem to be on the sidelines for now, latter makes sense until clarity on NAFTA and tariffs is gained. You figure out NAFTA & tariffs & you have a big trade on CAD & MXN
  • European Central Bank seemed to give the market what it wanted with the statement, yet potentially due to over positioning or Mario Draghi not being as hawkish as the market expected we went from one reversal to the next (sub 1.2380 to over 1.2440 before coming back down & closing a few pips above 1.2300).
  • US tariffs: Continued focus on tariffs, with market taking the current exemption positively (Cana da and Mexico)
  • US Super Friday: Massive beat on the US nonfarm payrolls, yet a miss on average hourly earnings which was what it was all about
  • US NFP +313,000 a 205,000 e 239,000 p (rev. up +39,000), hourly earnings +2.6%a +2.8%e +2.8%p (rev. dwn -0.1%), U/R 4.1%a 4.0%e 4.1%p
  • FI: US 10-years first weekly close higher in three weeks, with under two weeks to March 21 Federal Reserve meeting
  • Commodities: Mixed – Nickel sees a +3% week as the clear bull, Sugar -4.3% as the clear bear
  • Equities: Very bullish week & super strong close on US Friday
  • Volatilities: Down close to 5 vol points on VIX for the week, as we finish -25% to close at 14.64

Not long now ... the countdown is on for the Fed's March 21 meeting. Photo: Shutterstock 

The week ahead

  • Key focus: US CPI Tuesday + trade wars theme continues + countdown to fed
  • Central banks (SGT): BoJ mins (14) SNB -0.75% e/p (15)
  • Fed speakers (SGT): Fed blackout as we countdown to March 21
  • Other (SGT): Time shift in the US over the weekend, BoC’s Poloz (13) ECB’s Draghi (14)
  • Economy side: US: CPI 2.2%e 2.1%p CORE 1.8%e/p, RS, PPI, Empire Mfg., Housing Starts, IP, Cap Util., JOLTS, UoM Sentiment CH: IP 6.3%e, FAI 7.0%e, RS 10.0%e EZ: IP, Final CPI 1.2%e/p, CORE 1.0%e/p JP: PPI, Tertiary Activity, BoJ Minutes, UK: Annual Budget NZ: CA, 4QGDP 3.1%e 2.7%p, Biz Mfg. Index AU: Home loans, MI Inflation Expectations, RBA Bulletin (quarterly)
COT report

  • FX: Yawn! Again, not a significant change in overall USD positioning, the market is still net-short $14.5bn vs. the 9 IMM currency futures
  • Commodities: Very similar to the previous week, hedge funds increased bullish commodity bets by 9% to 2.2mln lots in the week to March 6. Yet again, buying was once again concentrated in agriculture commodities, both softs and not least grains being bought, the latter at a breathtakingly pace.
Thoughts on market positioning and sentiment

Setting up into the March 21 Fed meeting: 

  • Very significant chance that we get an upgrade in the dot plots. Noted dove Brainard sounded hawkish last week
  • Previous minutes had 3x & 2X for 2018 & 2019 respectively. Think we definitely get to 3x for 2019 (+1x), yet can also see justification for +4x 2018 (+1x) & +3-4x for 2019 (+1-2x)
  • Now it’s a question of how this is communicated through, a +1x & +2x at the same time across the two years may surprise people. Where as sequential adjustments may be less of a shock
Potential trade wars saga far from over: Some interesting stats…

  • The 25% & 10% import tariffs on US steel & aluminium, accounts for 2% or $46bn of total US imports of $2.4trn (2017), which equates to 0.2% of US GDP – point here again, very little structural impact to the US
  • On the CA & MX side of things, as they are some of the biggest importers of steel & aluminium into the US. So clear ‘carrot & stick’ squeeze on NAFTA negotiations here
  • Actual US manufacturing jobs that deal with US steel & aluminium is 140,000… vs. over 6.5mln that deal in manufacturing that involves imported steel & aluminium (i.e. if policed through, clear massive net job lose)
  • Here is where it gets potentially interesting: “We can also do stupid” – European Commission President Jean-Claude Juncker.
  • There could be a mirror 25% tariff worth roughly €3bn ($3.7bn) targeting Harleys, cranberries & bourbon. Here is the kicker, Harleys & cranberries are made in the home state of the Speaker of the House, Paul Ryan’s Wisconsin. Meanwhile Harleys come from the leader of the Republicans in the Senate, Mitch McConnell’s Kentucky. For a US election year, that’s not stupid
  • Then of course, in 2016 the US did import close to €40bn worth of European cars. Trump has already flagged potential tariffs in this area, US cars makers & Tesla shorts beware

Technical outlook (James Kim)

  • DXY: Back over 20DMA of 89.785, with Friday's close of 90.093, near-term bullish… key level to close over is back over 91.011
  • EURUSD: Middle of range that has been built up since backend of January, JK would look for 1.2340 for potential shorting
  • EURNZD: Still like the shorts… look out for event risk on NZ Q4 GDP later this week
  • AUDJPY: Would still look for shorting attempts at around 84.36, previous resistance levels
  • AUDUSD: Big reversal with turnaround on Friday, bullish for now.
  • USDJPY: Weakness persists and long-term technical support violated. Short-term, we have a double bottom set-up … would play tactical move upwards to 107.55, key resistance should be in the 108.50 / 109.00 zones
  • S&P: Very bullish development and overall a very strong close on a Friday, the most important close of the week
  • ASX200: Top side of 6000 reached, 5900 is support, for now still bullish
  • XAU: Would still target lifting any retracements back to the 1300 level

Macro Monday Books (Tactical and Strategic)

  • No new trades yet
  • Trade idea thoughts: (more work to be done – food for thought)
  • Potentially looking for a few short plays into the Fed meeting, thesis being – this is still a more hawkish Fed than is being fully appreciated
  • Could be some more shorts in gold as well as silver, bunds, etc


Click to enlarge table
 For more on forex, click here.

A replay of the call is available here

– Edited by Gayle Bryant

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], 1130 [Sydney].

andrewloz andrewloz
The recording link seems not to be working.
Madjid Madjid
Hi Kay, Can you you please paste the link to the recording not the live meeting
JulioCésar JulioCésar
Thanks for posting a readable table.
Anatoly Vyacheslav Anatoly Vyacheslav
This comment has been redacted


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