Article / 10 July 2017 at 3:00 GMT

Macro Monday: Here comes the USD — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub

  • G20 risks was greatly exaggerated - not much material impact
  • North Korea's missile launch on July 4 could increase likelihood of conflict
  • EUR, GBP positioning is still low and could possibly go higher

By Kay Van-Petersen

A  replay of the call is available here

Summary of prior week

  • Bank of Japan announced on Friday that it would buy unlimited amount of bonds. Risk that JP 10 year could rise sharply.
  • G20 risks was greatly exaggerated. Not much material impact.
  • Signs of very stressed scared & low liquidity markets. Saw periods of 100% correlation bonds, equities and gold being sold off.
  • Fed Minutes seems focused on timing and communication around balance sheet trimming.
  • North Korea's Intercontinental Ballistic Missile launch on July 4 could increase likelihood of conflict  - the capability of North Korea  to reach US soil is a game changer. Question is what is the US response?

 Reasons to be worried: The question is, how will the US respond? Photo: Shutterstock

COT Report from 20 June

  • USD still unloved, down 10% to 2.6B – from a consensus bias and positioning view no one wants to be long the USD it seems.
  • NZD positioning currently at 94% relative to the year high. AUD positioning increased as well.
  • Just like EUR, GBP positioning is still low and could possibly go higher should positioning start to change.
  • Silver positioning at new low and Gold could likely joint suit in next week’s report. Would need pause or turnaround in yields for sell-off to subside.
  • Both CBOT wheat and KCBT wheat positioning at all-time high.

 Week ahead and current thoughts

  • Key Focus : All about inflation, BoC hike, Janet Yellen testimony
  • Central Banks: BoC 0.75% e 0.50% p (12) BNM 3.00% e/p (13) BoK 1.25% e/p (13) CL 1.25% e/p (14)
  • Fed speakers: Eight speakers this week. Williams (11) Brainard (11,13) Yellen Congress Testimony (12,13) George (12) Evans (13) Kaplan (14)
  • Other: Draghi (10) Kuroda (10) BoE’s Haldane (Hawkish tones last) (11) BoC Policy report (12) BoR’s Nabiullina (13,14)
  • Economic side : US: JOLTS, Inv., Beige Book, CPI +1.7%e 1.9%p CORE 1.7% e/p CH: CPI +1.6%e/p, PPI, Loans, TB EZ: IP, TB, CPI EZ +1.5% e/p CPI GE +1.6% e/p JP: PPI, Tertiary Data UK: Avg. Hrly, Jobs Data AU: Home loans NZ: Food prices, Home Sales
  • Thoughts on Market Positioning/ Sentiment: The ICBM missiles launch could put us in a risk off environment and could put USDJPY longs in risk. If we do not see a tougher US response over the next few days, expect USDJPY to grind higher – prefer to play upside through options.
  • Bank of Japan cannot keep the 10 year JGB rate down forever. German bunds have technically broken their multi-month resistant line of c. 0.48 – 0.50%, we closed at c. 0.573%.
  • BoC potentially hiking this week is big – again from the surprise 4wks back… (Mon/Tue on the wk of Fed Jun 14th Hike) – yes data has been good, yet to me given where oil is & my structural view on it (hard to sustainably get above $50), clearly KVP is missing something here?
  • Long USDTWD is preferred through NDFs to play higher USD moving higher, global rates higher theme and potential emerging market outflows, basically we are looking for a laggard type plays as we expect the fast pace of yield moves up to continue. Its also an icing on the cake on NK/US conflict, plus great hedge across a lot of macro books that are short USD.

 Source: Saxo Bank

  • Other candidates that we would be looking at on the short side of the USD are CHF, SGD, KRW. We’d avoid short against EUR, GBP anf CAD.
  • KVP on Bunds chart: Break up to new highs on bunds, very significant – opens the way higher to the 69-70bp weekly 200 level… Still believe in 80bp by year end.

Bunds breaking out chart


Source: Bloomberg
Global macro book: Review of tactical book

  • Nine Positions, seven ideas, 89% Win Ratio
  • 1.92% Biggest Gain to Portfolio – Shorting USDCHF (super high conviction trade)
  • 0.99% Biggest loss to Portfolio – Longing AUDNZD

Technical Picture: Edmund Liu

  • Dollar index: DXY still below trendline support on weekly. MACD still points at negative momentum.
  • GBPUSD: Weekly chart shows 1.30 overhead resistance.
  • EURUSD : 1.14 overhead resistance on weekly charts. Neutral now due to price at resistance level.
  • AUDNZD: Supported at 1.0350 on weekly charts.
  • EURGBP: Broke out from the symmetrical triangle and MACD pointing to bullish momentum as well.
  • USDJPY : Broke the trendline resistance with current resistance at 115.00.
  • Crude : Descending Broadening Wedge with key support at $42.00 which was held gold  
  • USDCAD : Break of 1.2830 could see USDCAD going lower towards to 1.2775.
  • Dax : Bearish crossover in MACD and RSI indicate overbought may see Dax traded lower, just like what happened in Q1 2016.
  • S&P 500: Upside momentum at risk of correction as the MACD logs a bear cross and the RSI logs a series of lower highs.
  • XAUUSD: Momentum still pointing down to the downside with MACD pointing to a bear cross and double top chart pattern could see further price depression.

  – Edited by Adam Courtenay

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].

ozmike ozmike
Thanks Adam Courtenay for the write up. Something new? Haven't seen it before. I like it. Thanks for link to actual MM


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