US dollar bull market intact

See the latest Australian dollar analysis here:

Macro Afternoon

Some nice charts on why the DXY bull market is not over from The Market Ear.


Not a recipe for sustained USD weakness
Softer yields in the presence of weak growth is not a recipe for sustained USD weakness
EUR: Lower for longer
GS FX does not think the recent recovery in EUR/USD is not entirely justified by the news flow and are tempted by the 10:1 payout on 4m EUR/USD 0.95 puts. GS FX: “The next 6 months seem likely to be challenging for the Euro area, which is likely to keep EUR/USD close to parity. Our economists now expect the Euro area to be in recession in the second half of this year; spot data are already slowing materially and further production disruptions are likely. Most critically, with natural gas supplies from Russia well below normal, it will require some form of demand destruction—through some combination of higher prices and government policies—to make it through the winter, even if storage tanks are full. We think the recent move lower in EUR/USD reflects this shifting growth outlook, and is likely to extend somewhat further given the continued downside risks to activity from more severe gas disruptions and the scope for a much deeper downturn. We are revising down our 3m and 6m EUR/USD forecast to 0.99 and 1.02 (from 1.05 and 1.10 previously)” (GS FX)
USD and FED meetings
 The USD has tended to fall in the first few days after Fed meetings this year, but that weakness hasn’t proven durable
“Mentions of inflation” peak
Goldman’s “Company Price Announcement” Index based on Russell 3000 earnings calls edged down slightly.
Underlying inflation trend up
Measures of the underlying inflation trend have increased substantially.
That inflation moderation
GS: “The market is implying a faster moderation in inflation over the next year than our economists anticipate”
Inflation & politics
Biden approval rating vs US CPI inflation.
Flow Show
Treasuries scream US recession
JPM: “After this week’s decline, the level of Treasury yields would be justified if we lowered our growth forecasts by 9%-pts, consistent with the US economy entering a recession”
Front-end yields and recession
Front-end yields have repriced lower as data has underperformed, raising recessionary fears…
Greater than 50% chance of no recession
Economic data and the yield curve imply nearly 50% probability of recession within the next year…
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