Macro Monday Week 47: US dollar is on the ropes — #SaxoStrats
- The US dollar selloff has continued; it's been mostly EUR and JPY based
- Both gold and silver made strong gains last week
- There is 92.3% implied probability of December hike by the Fed
Summary of prior week
- Market sentiment seemed to return to discounting good economic data for USD and focusing on strong Eurozone data.
- German GDP beats, with growth of 2.8% against 2.3% expected.
- DXY was pulled back by the latest tax plan twists.
- Three new HK IPOs Yixin (2858), Bestway (3358) and Sun Hing (1975).
- Forex: US selloff continues, still predominantly EUR and JPY based; AUD and NZD were even more heavily sold last week, with falls of 1.27% and 1.85% respectively.
- Commodities: Gold and silver both saw decent uplifts of 1.4% and 2.5% for the week.
- Equities: Nasdaq and Russell outliers SPX, Dow and Eurozone and most of Asia was down. TH + 1.2%
- Vol: VIX closes off high of 14.51, at 11.43 +1.2% / wk. For context, at 14.51, +61% move from November 3 low of 8.99.
Precious metals head higher... Gold rose 1.4% last week, while silver was up by a hefty 2.5% for the week. Photo: Shutterstock
- Positioning in USD remains flat with little change, but the question is this: do we reverse and go back to record shorts or add into longs?
- Market long against JPY and CHF with positioning in CHF and JPY at low. A contrarian perspective would be puts/put spreads protection on USDCHF/USDJPY
- Positioning in gold and silver were flat and probably need a break on the $1250 on the downside, or $1320 at the top side, to see some serious change.
- Key focus: US Thanksgiving weekend, FOMC minutes, Flash PMIs.
- Central banks: RBA minutes (due out on November 21); NG 14.00% e/p (November 21); FOMC, MXN, European Central Bank minutes (November 23), SA 6.75% e/p (November 23).
- Fed speakers: Janet Yellen (November 22).
- Other: Mario Draghi (November 20/21), RBA’s Lowe (November 21), US Thanksgiving (November 23, bridging the weekend), SNB’s Jordan (November 24).
- US: Durable goods, Flash PMIs 55.1e manufacturing. 55.5e serv. , FOMC Minutes .
- China: Leading Index.
- Eurozone: Germany PPI, Flash PMIs 58.3e manufacturing 55.3e services.
- Japan: TB, Flash PMI 52.6e manufacturing.
- UK: CPI report hearing, second GDP reading.
- New Zealand: Global dairy auction, visitors, RS, TB.
- Australia: RBA minutes, Construction work.
- Federal Reserve December 13: 92.3% implied probability of December hike and there is a 32.6% implied probability of three hikes between today and 30 January 30, 2019. Adjustments to 2018 dot plots.
- Cryptos: Colossal event-driven structural shift over next six to 18 months.
- CME will be launching Bitcoin trading on the second week of December and this will have colossal significance. A one of a kind multi-generational event.
- KVP believes we ain’t seen nothing yet, and for those thinking ahead on what the next futures would be in the crypto asset space and Ethereum is the natural contender there
- Protection: those looking into year-end/year-start protection, KVP would be considering three to six month Puts and Put spreads in USDJPY, USDCHF, Nikkei, HYG and EEM. Symmetrically on the call side: calls and call spreads on gold and silver could be interesting candidates as well, as would be the VIX and VXX.
- If you have any Outrageous Predictions, please send your thoughts to Macro@Saxobank.com. Please keep it concise; Kay is happy to mention your first name or keep it anonymous. Last year KVP’s predictions was for Bitcoin to triple in 2017.
- DXY: Fail to hold its neckline and its short term trend line. Weekly chart touches the 200 days moving average and will need to see it hold for any possible bounces. However, 94 to act as first resistance.
- EUR: Staged a strong recovery as it pushed above neckline as well as breaking short term down trendline. Daily reversal on the November 15 signals a retracement underway.
- USDCAD: Held its trendline support last week but price action is indecisive with the Dojis seen last week. Initiate negative view should trendline fail to hold for 2 consecutive sessions.
- GBPUSD: Trend line was also respected with 1.3319 a key resistance followed by its high in Oct at 1.3339 which is also the 50% fib retracement from September to November.
- AUDUSD: Could retrace to 0.7476, which is the Fibonacci 50 retracement and also the trend line support. Would prefer a buy on dip due to huge retracement since hitting at high at 0.810. Buy zone start at 0.7505.
- USDJPY: Currently trading near the 200 day moving average, which previously offered support to USDJPY in early October. A move below here opens up the ¥111 handle.
- Nikkei 225: Rested on the multi-year resistance turned support trend line last week with a long lower tail formation on Friday, and uptrend could continue.
- S&P/ASX200: Failed to hold key 6,000 level, which remains as key test to claim in the week ahead, with support to be eyed at 5900
- Crude: Managed to bounce off its 2017 break out level ~ $55/b
- Gold: Formation of a month high last week but level here was resisted twice this year previously. Next level to watch $1306.90.
Tactical Book: unchanged
Strategic Book: unchanged
For this week's recording the Macro Monday call 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], 1130 [Sydney].