Australian dollar epicentre of building global earthquake

See the latest Australian dollar analysis here:

Macro Afternoon

It looks like DXY is revving up to break higher. EUR is plunging:

AUD was flushed again Friday night:

Gold too, oil held on:

Base metals were mixed. The copper chart is developing a bearish down channel and why not?

Big miners whoa!

EM stocks held on:

EM junk is peeling off southwards:

Treasuries backed-up:

And stocks were led lower by FAAMGS:

Jumping energy prices and yields, plus the building shock in China, is all we need to explain the rising DXY.

I fear that this energy price blowoff – which I see as short-term – is the straw that breaks the Fed’s back and it goes ahead with taper at the very worst possible instant.

The global credit impulse is cratering just as US growth normalises under pressure from its fiscal cliff, the global inventory cycle fades, and Chinese property development delivers a severe shock to global commodity demand, as well as a material shock to global growth.

There’ll be some support in the European reopening but that’ll be curtailed by China, plus better services spending post-Delta, though that’s going to run into in the northern winter virus resurgence.

Then there is the US debt limit saga and European elections to worry about.

Wall Street is clinging to the deluded notion of a secular bull market for commodities that looks like a classic bubble that is driving up yields.

This set-up has blowoff and bust written all over it, driving risk-off flows and DXY to the moon and sending EMs and commodities into free fall. See lumber and iron ore as the foretaste.

The AUD is at the epicentre of a building global earthquake which is doubtless why the market is now the shortest EVER:

Conversely, when they come, short squeezes higher will be violent.

Houses and Holes
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Comments

    • Go to CFTC AUD SPEC positioning & overlay an AUD chart over it & you’ll see the market is the most extreme short in history & it nearly always corresponds to a turning point of AUD rising – overlay the charts
      Economic analysis is only one part of markets

  1. aud went up in a straight line two weeks straight from 23 Aug right through what is supposed to be the biggest short buildup ever. We’re only down 3-4 % from five months ago. Those ‘short positioning’ numbers are pretty useless in my experience.
    The aud has been extraordinarily calm given what’s going on right now.

    • Don
      I’m not sure what experience you have but positioning makes a huge difference as to the next move. This is a very crowded trade. The risk is skewed to the upside not downside.

      We are getting close to a bottom in everything

  2. First of all

    The EUR isn’t plunging, it sold off 0.40%, hardly plunging

    Why is the AUD only down 2c while the market has built up 83k record ever short positioning?

    Why are US bond yields and Aust bond yields moving higher ?

    Why hasn’t US high yield corporate debt even budged, it’s sitting at absolute highs since March 2020 lows
    Why would the FED announce a taper on Wednesday with all this going on – sounds like that suits your narrative

    Copper is 5 to 6 % higher off it’s lows 3 weeks ago & is just in the middle of its last 3 month trading range & what’s the down trend in copper ? I can’t see it. Sounds like you’ve just made that up too.

    If you are sitting short AUD & I wouldn’t be surprised to see up near 100k short positioning this week prior to FOMC, going to be very hard for AUD to fall when market is that short

    The market is sending a message & you aren’t seeing it

    When this reverses it’s going to be a massacre

    US bond 10 year yield look they are about to break to the upside & AUD getting ready to turn up

    China & the FED aren’t going to sit back & watch this tip over – not going to happen.

    Anyone sitting short here, is taking a huge risk

    You are betting on one thing only & the financial market is telling you something different

    Feels to me a blood bath directly ahead