Article / 21 August 2017 at 2:00 GMT

Macro Monday: Jackson Hole, North Korea, team Trump — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
  • Steve Bannon's exit from the White House can only be a good thing
  • The Jackson Hole summit is in focus this week; Mario Draghi will attend
  • But there are fading expectations of Draghi making any key announcements
By Kay Van-Petersen

Summary of the past week

  • Boiling point within Trump Administration seems to somehow meet new highs – presidential advisor Steve Bannon exiting can only be a good thing.
  • ECB press release mitigating any expectations at Jackson Hole for an update on monetary policy from Mario Draghi. Did little to curb Euro strength.
  • Terror attacks yet again in Europe; this is unfortunately the norm, people.
  • Equities: Up across Eurozone (weaker euro and strong technicals helping), down in the US and mixed in Asia.
  • FX: DXY up for the week., mainly driven by EURUSD being down 0.50% for the week.
  • FI: Slightly wider, with Japanese government bonds being the exception at 3.3 basis points.
  • Commodities: On the back foot last week, except nickel, which was up 3%; loving the price action in oil.
  • Vol: VIX down 8% on week, but sees heightened volatility through the week.


ECB president Mario Draghi will be among the speakers at the Federal Reserve's three-day summit in Jackson Hole, Wyoming, above, which begins on August 24. Photo: Shutterstock
The COT report
  • USD: market net short over 13.4 yard.
  • Profit taking in CAD and NZD long positions. Positioning remains elevated in CAD, MXN, EUR and AUD.
  • Commodities: Copper and palladium show significant long positioning.  Shorts in Sugar at 52 week high. Softs see big net w/w changes reducing positions.
The week ahead
  • Key Focus: Fed's Jackson Hole summit, Flash PMIs, Military drills on the Korean peninsula.
  • Central Banks: Kazakhstan 10.0%e 10.50%p (August 21) , Bank Indonesia 4.75% e/p (August 22).
  • Fed Speakers: Robert Kaplan, President/CEO at Federal Reserve Bank of Dallas (August 23), Federal Open Market Committee chair Janet Yellen (August 25).
  • Other: Mario Draghi (August 23) plus at Jackson Hole.
Economic data
  • US: Flash PMIs, House Data, Durable Goods
  • CH: FRI, IP
  • Eurozone: Flash PMIs, Consumer Confidence
  • Japan: CPI, Flash PMIs
  • UK: GDP +1.7%e/p, TB
  • AU: (light)
  • NZ: Migration, Credit Spending, TB
Thoughts and positioning
  • Jackson Hole: Fading expectations of Mario Draghi. Euro downside risks elevated and potential for Eurozone equities to move higher.
  • Federal Reserve/Federal Open Market Committee: KVP was the lone voice in calling for upside risks to inflation and US rates. Currently market has: record shorts in USD Longs, long US 10 years and short inflation. It is clear however, that inflation is taking longer to rise in the US. CPI prints were not as bad as the market is making out. Positive on commodities and oil outlook in general.
  • South Korea and US: Annual military drills (August 21-31); the bears are watching, given escalation in tensions with North Korea over prior few weeks
  • Big picture thought: Quantitative easing was in theory supposed to be inflationary and prompt companies to invest. It did the opposite. QT is in theory supposed to be deflationary and cause companies not to invest – KVP feels that in practice, it will be the opposite.
  • VIX: Has the buy the dip/short volatility regime changed?
Technical picture: James Kim
  • Dollar index: weekly chart hovers above 200 week moving average. Daily chart shows attempted rally consistently fails. Sellers therefore at the highs. Caught in a channel formation, support at 93.5 and then  resistance at 94.
  • EUR: Cautious tone, with short term up trend line broken. First support offered at 1.17 handle, which is where April may trend line is.  Shorts above 1.1819 the level to sell stop above 1.1850.

EURUSD chartnnn

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  • USDCAD: expect 1.2550 as support, but look to get long at 1.25 for tactical position from the long side with a tight stop.
  • AUDUSD: New August low, but buying at the break out level at 0.7803. Outlook remains positive.
  • USDJPY: Supported at ¥108.73 the key support. New lows last week, with rising RSI. An A class divergence, so potential it moves higher.  Target ¥111 handle.

USDJPY chart

  • US 10 years: prices up to June 2017 highs. Technical picture looks like could see selling in US 10 years and a higher yields this week.
  • Nikkei: Retest of 200 day moving average, appears supported here. Sees a bounce this week at 19810 target with stops at 19300.
  • S&P/ASX200: Choppy trading and consolidation continues. The index is trading in a range between 5,800 and 5,700.
Choppy trading on the S&P/ASX200

  • S&P E-mini: No evidence to suggest the pullback will be halted, only support at 2400 and expect further downside.
  • XAU: New 2017 highs above the 1300 level. Huge reversal off 1300, a bearish move. Potential sentiment is negative this week. Support at 1272, failing that will look very negative.

Macro Monday Portfolios, Strategic Book and Tactical Book: KVP
  • Short Volatility through December 15 call spreads on SVXY.  
  • Gold: first target hit, bring in +24 basis points to the port.
  • Stopped on Swiss equity index trade, timing on this was atrocious & that’s why we use stop loses, -97basis points.

Strategic book (click to enlarge)nnn

  • Short volatility through September 15 long calls on SVXY.
  • First target on Nasdaq Shorts hit (took profit a touch higher as got impatient & was wary of a pullback, have moved stops to entry).
  • First target on EURJPY shorts of ¥128.00 hit, banking +37 basis points, or $37,000 to the portfolio. This leaves the second leg, targeting ¥125.08.

Tactical book (click to enlarge)nnn

Here is this morning's recording of this week's Macro Monday call.

For more on forex, click here.

 – Edited by Robert Ryan

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].


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