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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 / 19 March 2018 at 2:49 GMT

Macro Monday: Release the Powell! FOMC set to surprise — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
Singapore
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  • The FOMC may reveal if it plans to accelerate its pace of planned rate hikes
  • FX traders will scrutinize wording and any other other signs of a shift by the FOMC
  • GBPUSD traders are anxiously awaiting this week's rate decision from the BoE
  • G20 finance ministers meet this week, amid rising tensions over US metals tariffs

By Kay Van-Petersen

Summary of the prior week
  • EU response to US tariffs: Still waiting for a formal response to US trade.
  • White House: More jitters on potential senior staff leaving. Larry Kudlow will take up the post of top economic advisor to Donald Trump, replacing Gary Cohn. “Buy king dollar, sell gold.”
  • Republican congressional stronghold seat in Pennsylvania falls to the democrats, which could be a theme of potential serious upsets this year.
  • Swiss National Bank: We still think the Swiss Franc is valued too high; looks set to be on hold for longer.
  • Central Bank of Norway: Looks like it’s getting the market to hike earlier than expected this year, with the hint of a move in the summer. This follows after a few weeks ago which should them lowering their inflation target.
  • Bank of Canada: Quite dovish and restarined commentary coming from BoC governor Stephen Poloz
  • Fixed incomes: Yields tighter for the week.
  • Forex: Slight grind up in the DXY, big technical breaks in CAD crosses.  .
  • CMD: Mainly lower, oil & nickel outliers. Gold super contested price action
  • Equities: Eurozone outperforms as US and Asia mainly pull back.
  • Vol: +8% on the week with the VIX taking back from 14.64 to 15.80.
The COT report
  • Forex: Market grows USD net-short c. 17.8bn (14.5bn) vs. the 9 IMM currency futures. Euro net-longs back to extreme levels on a 1yr window (98%) – six week high.
  • Commodities: Gold and silver continued to be sold. Long liquidation in HG copper. Net-long now cut to the lowest level since November 2016.


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Trade tensions ... the US metals tariffs and the EU response are likely to overshadow this week's G20 meeting in Buenos Aires. Photo: Shutterstock


The week ahead

  • Key focus: FOMC and the EU response / trade wars theme, and US government shutdown remix.
  • Central banks (SGT): FOMC 1.75%e 1.50%p (02:00, 22), RBNZ +1.75% e/p (March 22) BOE +0.50% e/p (March 22), BZ +6.50%e +6.75%p (March 22), PH +3.00%e/p (March 22) ID +4.25%e/p (March 22) RU +7.25%e 7.5%p (March 23)
  • Federal Reserve speakers (Singapore times):  Federal Reserve Bank of Atlanta President Raphael Bostic (2140 19; 20:30, March 23), Minneapolis Fed President Neel Kashkari (2230, March 23) Boston Fed President Eric Rosengren (0700, March 24)
  • Other (SGT): G20 meetings, Japan's bank holiday Wednesday  March 21
Economic data
  • US: Flash PMI manufacturing 56.0e 55.3p Services. 56.1e 55.9p, Current Account, Core Durables, New Home Sales
  • CH: Leading index
  • Eurozone: Flash manufacturing 58.1e 58.6p Services 56.0e 56.2p
  • Japan: Flash PMI manufacturing 54.3e 54.1p, National Core CPI 1.0%e
  • UK: CPI 2.8%e 3.0%p, Jobs Data, RS
  • New Zealand: Dairy auction, visitor arrivals
  • Australia: RBA minutes, House price and jobs data 20.3K e 16.0k p, U/R 5.5% e/p
Thoughts on market positioning and sentiment
  • Federal Open Market Committee: Very significant chance that we get an upgrade in the dot plots. KVP feels we could go from the previous dot plots of 3 times and 2 times for 2018 and 2019, to 4 times (+1), 3 times (+1), respectively.
  • Also expect include upward revisions to inflation and growth expectations and downward revision to lower unemployment rate. Would expect the +1x to 3 dots for 2019 to be no surprise to the market. The overall market consensus view seems fairly relaxed around the meeting & even the implied vols on USDJPY and EURUSD were about half of what they tend to be on a much anticipated meeting.
  • The Jerome Powell Fed is different from Janet Yellen Fed.
  • Campaign of tariff/trade wars: Farfrom out of the woods, expect the EU response to come through soon. Then we could potentially have another shakeout, as we touched on last week’s Macro Monday column (Macro Monday: Countdown to the Fed's March 21 meeting — #SaxoStrats). A potential Trump response or perceived response to smack tariffs on the approximate €40bn worth of auto imports that go into the US.
  • So we could also potentially be played on the Nikkei. This could see another jitters of trade war fears and equities selling off, on top of that we have FOMC risk above (could we see US10s finally break 3.0%) and a rehash of US government shutdown.
  • Also China and US tech IP… Estimates for the potential penalties are in the hundreds of billions. Shorting and buying Gold around FOMC hike meeting: On Macro Monday, we’ve done a comprehensive overview of how gold and silver has performed going into the FOMC hike meetings. History dictates this is a profitable strategy (see Precious metals offer opportunity as FOMC draws near — #SaxoStrats from last week and note the bounce in gold post the FOMC hike meeting, as show on slide #15)
Technical outlook (James Kim)
  • DXY: strong week for DXY, four in a row. Improving technical picture, target remains target from 2017 downtrend. Trading in ascending triangle formation, bullish formation.
  • EUR: Inverse of DXY. Failing to break higher again last week. Technical picture remains negative with a view that EUR trades towards 2017 uptrend  with stop 1.2445, below this 1.2055
  • EURJPY: Remain bearish on the pair, confident it heads below the Feb lows towards 128.
  • EURNZD: Short term picture points to strength ahead
  • AUDJPY: Short view looks good with test of 2018 lows. Big selling last week, showing further weakness ahead. Look to sell the break further of the March lows with an end target at 79.7
  • AUDUSD: Very weak close last week. New 2018 lows below 200 WMA. No real support until retest of 2016 uptrend around 76 cents.
  • USDJPY: Funding support at 2018 downtrend, looking for it to build a base. Long term picture still negative, but short term less clear. Would look at selling rallies on this view.
  • S&P 500: Crucial test ahead this week,  2 attempts at 2800 but fails. Consolidating in a rising wedge formation, bearish if the uptrend is broken. Break of this would be a strong negative bias. 2800 must be claimed soon to extend S&P gains.
  • S&P/ASX 200: quite positive price action however hostage to global leads. Upside target 6000.
  • XAU: Short term set up potential descending triangle set up. 1302 the support that must hold; 1280 a potential buy area.
Macro Monday Portfolio (Tactical and Strategic)
  • Short XAU into Federal Open Market Committee meeting trade idea. 
  • Added long NOK positions. 

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 Please click to enlarge the above table and the following charts.

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A replay of the call is available 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], 1130 [Sydney].

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