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Article / 15 August 2016 at 2:58 GMT

Macro Monday: Focus on FOMC minutes and inflation

Global Macro Strategist [Asia based] / Saxo Bank
  • Three central banks will present minutes this week
  • The USD to be neutral to supported going into FOMC minutes on Wednesday
  • Equities are still risk-on: outperformance of European equities vs US counterparts

By Kay Van-Petersen

Welcome to Macro Monday: your cross-asset weekly call on global markets. For Week 33 we take a look at:

  • Inflation and minutes-themed week ahead (Reserve Bank of Australia on Tuesday; Federal Open Market Committee on Wednesday, and the European Central Bank on Thursday.)
  • FOMC minutes should be the "known" focus on this week’s agenda
  • We’d expect the USD to be neutral to supported going into those minutes as the markets get potentially wary on the dollar shorts out there. DXY at key levels – yet again
  • Thoughts on near-term tactical positioning include: equities still risk-on, interesting outperformance with European equities vs. their US counterparts. Expecting a much bigger move coming through in the US; still like Aussie and yield-related FX, yet expect headwinds until we are through Wednesday
  • Oil just shy of the $45 target we flagged from our bullish take last week. Still looks constructive, either take it off around here ($44.80) or better yet, move up your stops and see where this puppy can run to
  • Metals looking mixed, copper feels weak and sitting just on key 200D MA
  • COT Report highlights: FX’s only extreme positioning is in GBP, where net shorts are even higher than pre-Bank of England. On the CMD side, we are seeing new one-year record net longs in: palladium, platinum, cotton, cattle and sugar. A bit of softening in the gold positioning, plus a fifth of an increase in WTI net longs (despite record gross short positions)
  • Volatilities low and going lower. Tail-risk insurance and option premiums in general are looking cheap. New record net short VIX index futures set
  • Speakers: Fed speak from James Bullard (Wednesday) and John Williams (Thursday). Plus Reserve Bank of New Zealand Graeme Wheeler on Tuesday

In the spotlight ... the Federal Reserve is just one of three central banks whose minutes will come
under scrutiny this week. Photo: iStock

Additional technical developments

  • DXY: In holding pattern, caught in a broad channel, test for the week: can DXY test and subsequently break above 200DMA
  • EUR: 200DMA should be weekly support. Last week’s high could be tested this week based on recent price action, attractive selling opportunities above there. Euro bears to exercise patience and wait for break below of 200DMA at 1.1087
  • GBP: Closed near the lows of July, this could provide temporary support. A break opens up further downside
  • AUD: Bulls should be weary of potential false break higher last week. Pullbacks should find support around the 0.7500. Risks that it may trade softer
  • JPY: hovering just above 50% retracement, the longer it’s here, the greater probability of a break lower. Rallies this week to find resistance at last week’s highs around 102.7
  • Nikkei futures: 16,950 the level that needs to break, then next test comes in at 200 DMA and February lows trend line
  • S&P: Narrowing price action, a break of the rising wedge formation on either side will determine near-term direction
  • ASX: Underperformed global markets held back by banking sector. Narrowing flag, needs to break out to determine direction
  • Crude: Positive momentum from last week. May top out at 45.43 as this poses heavy resistance, potential to consider short positions
  • Copper: Failed on its rally attempt earlier in the week, closed on Friday right on 200DMA. Very bearish technical setup, a break below 200DMA opens up 207.54 near term. Monthly chart momentum continues to point towards a test of the long term uptrend

Next week: Focus will be on the annual Jackson Hole Symposium
Here is this morning’s recording of Macro Monday Call.
 – Edited by Gayle Bryant

Kay Van-Petersen (KVP) is Global Macro Strategist at Saxo Bank, please follow him on Twitter @KVP_Macro and at SaxoStrats. Please join us here live again next Monday at: 0830 [SG/HK], 0930 [TOK], 1030 [SYD]. 


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