Macro Monday: USD reversal sets stage for strong week — #SaxoStrats
- Several Asian nations are taking a break for the Lunar New Year
- China starts work again on Thursday, after many millions visited their home towns
- There will be plenty of Federal Reserve speakers this week
- AUDUSD resilience has defied the Aussie dollar bears
- The monthly chart for copper looks positive with a nice upward channel
Summary of the prior week
- US CPI data: There was a strong print (Core 1.8% / Headline 2.1%) yet USD suffered from weakness until the end of week rally set in.
- Russia interfered with US election : 13 Russian citizens and three Russian companies were indicted on charges of engaging in a widespread effort to interfere in the 2016 presidential election.
- Fixed income: US 10s closed at 2.8749 post a range of 2.9424 / 2.7842. Interesting to see the bund yields tighten on the wk closing at 0.706 (0.7945 / 0.6996).
- Forex: Very much a reverse of what we saw two weeks back, DXY -1.5%, Euro & Yen being amongst the biggest gainers. Emerging markets led the pack with Rusia's RUB and South Africa's ZAR clocking over +3% appreciations against the USD.
- Commodities Good overall week for commodities, interesting to see gold just shy of 1360 despite new highs in US10s & risk-on in equities.
- Equities: As we called in the previous week’s Macro Monday, we’ve rallied from the sell-off, with leadership being seen out of the US. Asia still lagging, partially due to CNY/holidays in region. Techs and Financials led the gains in the equities market since the low on February 8.
- Volatility: We’ve gone from 29 to 19.50 on the VIX as we’ve had a big -33% pullback in vol. And more importantly a similar big fall in the vol of vol (VVIX)
Faithful companions in many cultures, and a sign of good fortune in China ... the Macro Monday team wishes all of its readers a successful year of the dog. Photo: Shutterstock
The week ahead
- Key Focus: Central bank minutes week and Chinese New Year, and flash PMIs.
- Central Banks (Singapore time): RBA Minutes (due out on February 20) Federal Reserve, European Central Bank + MX Minutes (February 22) BI 4.25%p (15) SL 7.25%p (16)
- There will be plenty of Federal Reserve speakers this week (Singapore time): Harker (February 21), Quarles (February 22), Dudley (February 22/23), Bostic (February 23), Kaplan (February 23), Rosengren (February 23), Mester (February 24), Williams (February 24).
- Other (SGT): Bank of England's Mark Carney (20).
- Public holidays: US closed on Monday for President’s day, Chinese New Year break (February 15-21) Hong Kong's new year break (February 16-19), Taiwan (February 15-20).
- US: Flash PMI, Home Sales.
- Canada: CPI.
- China: Leading index (Note that China heads back to work on Thursday).
- Eurozone: ECB minutes, Consumer Confidence, CPI 1.3%e CORE 1.0%.
- Germany GDP.
- Japan: Trade Balance, All Industries Activity.
- UK: Jobs data, 2nd GDP read, Public Sector Borrowing.
- New Zealand: PPI, Global Dairy Auction, Credit Spending, Retail Sales.
- Australia: RBA minutes, Construction Data, CB leading index and Wages.
- US 10-year bond yield rises above Australia's for the first time in 18 years: an event that has only been seen in 35 trading sessions during the past 30 years yet correlation with AUDUSD broken since 2015; shows AUDUSD resilience that has defied any AUDUSD bears.
- USD could go into a possible squeeze earlier this week after Friday’s moves. and James Kim has a few ideas on technicals; see below.
Technical outlook (James Kim)
- DXY: Staged a remarkable reversal as seen from most G10s. Targeting 92.20 with stops at 87.20. Monthly 200MA providing support once again.
- EURUSD: False break in EURUSD as it completed a bearish reversal pattern on Friday. Prefers to short on retracement at 1.24703 with stops at last week's high and TP 1.22413
- EURNZD: Break of the channel has EURNZD targeting trading towards 1.6517.
- EURJPY: sitting at the key support level at ¥131.93, its base in 2017. KIV until break of the 200 day moving average.
- EURAUD: set for losses as its caught below a double top curse with 1.55 handle the downside target.
- USDJPY: Violated the trendline since 2012 or the Abenomics’ trendline. However, monthly 200 moving average could mean a respite from the selling. Tactical long with targets at ¥107.710 where we would cut and reverse to go short. Expect heavier resistance at previous 2012 uptrend.
- S&P 500: Bounced since the selloff but now sees resistance at the 61.8 retracement at 2744, followed by 2796. Decline in volume is worrying for the longs though.
- S&P/ASX200: finished last week above the 200 DMA and could see a further 100 points gain towards 6,000, its psychological level.
- Copper: Monthly chart is looking really positive with a nice upwards channel but we need to clear its 50% retracement at $3.29
- Gold: Short bias and similar to EURUSD and most of the G10s, dollar reversal could see Gold approaches $1335 then followed by $1319.
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– 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].