DXY resumed falling last night:
Australian dollar popped to new highs:
Despite the concrete boots in China:
Oil faded, gold firmed:
Copper is trying to break out:
Miners poured it on:
EM is dead:
Junk is leading the charge to a soft landing:
Yields firmed a little:
Stocks recovered some losses. It is noteworthy that Europe has stopped rising. EUR may already be snuffing out that rally:
How far will DXY fall? Barclays notes it is already very bearish:
Our proprietary month-end rebalancing model indicates a strong dollar selling signal by month-end against all majors.
We note that the signal is borderline ‘strong’ for all pairs but is still weaker than last month. This time, however, it operates against, and therefore also amplifies, a negative backdrop for the dollar in the wake of the Fed’s dovish pivot.
Accordingly, our already stretched USD sentiment indicator is likely to veer even further into negative territory at the start of 2024 (Figure 5).
The model’s signal is driven mainly by the continuation of the significant rally in the global equity and bonds markets MTD, especially after the dovish Fed meeting.
Although the broad rally extended to bond and equity markets outside the US, the large market cap in US equity markets has dominated hedging flows (Figure 2 and Figure 3), inducing our model to produce a strong dollar selling signal across majors at the month end.
We can expect DXY to get quite oversold in current conditions, and we haven’t even challenged the 2023 low yet.
More AUD rises to come.
