Macro Monday: Here comes the USD — #SaxoStrats
- 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?
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.
- 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
- 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].