(Note that these are solely the views & opinions of KVP/sender of this email & do not constitute any trade or investment recommendations.)
Macro Monday WK 43: Does Brexit deal = Top of USD strength?
A replay of the call is available HERE
TGIM & Happy Macro Monday everyone, welcome to WK 43.
Econ data will be light this week, it will be flash PMIs theme – key thing is really geopolitics, from Canadian elections today, to Syria/US/Russia (still no cease fire) and of course is there a real Brexit in the making or will we once again see another extension.
On the US dollar, the DXY has now posted 3 consecutive weeks of pullbacks with last wk’s -1.04%, with a pivotal weekly close below the 98.00 handle. Last wk marked the biggest down move since Jun of this year. So does this potentially signal the turn in the US dollar strength?
That is potentially going to be decided on if we get the UK exiting the EZ – dollar negative, as UK & sterling assets likely to finally get a structural multi-quarter if not multi-year bid given the 3yrs years of underweight & uncertainty. However if we get another extension, we could see a reverse in sterling & euro strength, which will likely result in a stronger USD once again.
Wishing everyone a healthy, phenomenal, smooth, profitable & lucky close to October.
Summary of Prior Week:
- Geo Politics: Still a lack of cease fire between Syria & Turkey, which was pushed by Trump from Sat. Looks like their good be some “real” sanctions in the work from congress, rather than Trump’s wrist slaps
Brexit saga continues, kudos to the sterling bulls & braves. Canadian elections shows the incumbent JT lagging on the poles vs. the conservatives
- ECON: We had beats in CPI in CA & CH, as well as strong jobs data in Australia
- EQ: SPX up for the wk, whilst EZ & Asia were mixed. Nikkei & Nifty Indexes the big outperformers. Lots of key equity index charts exhibiting reverse H&S patterns, signifying potential massive breaks to the upside. Dow just shy of ATHs
- FI: Wider for the wk as yields rose, yet marginally for USTs. Worth noting 2/10 cont. to steepen at c. +17bp, recall we got to c. - 6/7bp
- FX: GBP on fire, with the euro looking up – DXY key bearish close sub 98.00 lvl for a -1.04% for the wk
- CMD: Mixed across the complex. Big moves lower in iron ore & nickel, -6.5% to -7.5%
- Vol: Yield compression lower, close to -20% for the wk to c. 14.25 VIX handle, yet divergence in EZ EQ
COT Report: [@Ole_S_Hansen]
- Trend in USD Net-Longs continues to increase for the 4th wk running, with a +10% uplift to $20.5bn ($18.4bn)
- Biggest change is the reversal in the yen Net-Longs to Net-Shorts
- Commodities seeing two week of contractions in Net-Longs being reverse, is it back to risk-on – especially if we keep seeing a weaker US dollar.
- Flash PMIs | Brexit Exit or Extension? | CAD Elections | US / Turkey / Syria| Fed Oct 30
Central Banks (SGT):
- CL 1.75%e 2.00%p (24) NO 1.50% e/p (24) TU 15.50% e 16.50% p (24) ECB -0.50% e/p (24) ID 5.00% e 5.25% p (24) RU 6.75% e 7.00% p (25)
FOMC Speakers (SGT):
- Should be blackout period
- Coming Monday will be NZ Bank Hol
- US: Crude Oil Inv. , Durable Goods, Flash PMIs
- CH: Light
- EZ: Flash PMIs, Brexit discussions, ECB
- JP: Flash PMIs, Trade Balance
- UK: Flash PMIs, Brexit discussions
- NZ: Credit Card Spending, TB
- AU: Flash PMIs, CB Leading Index
- CA: Elections Mon (21), Retail Sales, BoC Biz Outlook
Chartography & Price Action
- We take a look at GBPUSD 1.2905 & EURGBP 0.86459 charts from daily, to weekly to quarterly to get context of the potential moves in the currency
- We look at the inverse H&S forming in the S&P 2986 – something that a lot of other equity indexes are also exhibiting, implying the potential for massive breakout to the topside. For instance, if the IHS in the S&P works out, it could signal +500 points over 6-12m taking us to the 3,500
- We look at the big break in the loonie 1.3132, as well as the fact that we may see a much stronger CAD if JT loses the elections today & based on the fact that relatively the BoC is more hawkish than the Fed. And yes, KVP is still surprised that USDCAD is not much stronger… we should be south of 1.3000
- We cover EURUSD 1.1158 & continued bullish price action, with key resistance lvls being 1.1250 & 1.1350… yet near-term price action likely tied to Brexit talks
- We also look at a few equity specific names including Netflix 275.30, Uber 32.06 & Lyft 40.79