DXY is pricing a dovish Fed at Jackson Hole:
AUD too:
North Asia is one way traffic:
Oil is the reverse. It’s not a pretty chart. Gold to the moon!
It is unusual and probably stupid to see metals diverge from oil:
Miners are the tell:
EM wants to but…
Junk still bullish:
Yields are approaching a trapdoor:
Stocks paused:
Citi wraps us up:
Having failed to sustain gains post retail sales and claims last week, yesterday saw the dollar make a decent move lower, the focus on Jackson Hole intensifying.
The post payrolls narrative here is that this could be a potential signal for (rapid?) fed easing in the face of a softening employment/activity situation.
Certainly, this is the page I’ve been on for the last couple of weeks.
However, standing back, US front-end pricing has moderated a lot: There is now 93bp+/- of easing by year-end, down from 110bp + at one stage, yet the DXY has sold off and now trades sub 02.00.
It’s not like this period has coincided with great data elsewhere either, (Euro PMIs Thursday are expected to be 50.1!). So, what gives?
I’ve some sympathy for the increased Harris odds explanation playing a part here, but I think it’s simpler than that: All year we’ve been waiting for the Fed to begin cutting and there’s been a ‘rolling three-month start’ that’s continued to roll forward until now.
Finally, we are at the stage where the Fed, who were expected to lead the pack in cutting rates at the turn of the year, will, with increasing likelihood, be joining those that have started their cycle.
I don’t think the market is especially short USD yet, and in contrast, I think maybe they are even short Euros on the crosses.
I continue to run long EURUSD. I suspect part of the pick-up in front end vols as spot goes higher reflects negative gamma positioning, and this encourages. Other dollar wise, and if the euro is the most unloved long then this is the most loved in my space, is AUDUSD.
We’ve had a nice move post PPI now back to above 0.6700, and I’ve taken some profits. Should risk sentiment have a wobble then, unlike eurusd, I think audusd will come off materially but this is a dip to buy.
Downside levels are 0.6640/60 , 0.6600, 0.6560/80.
That’s fair enough while the Fed floats all boats.
I still don’t think AUD will get overly far. The Fed should cut in 25bps increments and more slowing in Europe/China is ahead.
US exceptionalism is diminished but not over. The risk is that markets sell the Fed fact.
