The USD wrecking ball - EURUSD parity just a CPI print away
It's all-USD flow – we’ve seen breakouts/downs in the USDX, AUDUSD, USDJPY, NZDUSD, GBPUSD and EURUSD are a whisker away from parity. The wrecking ball that is the USD is on a war path, talk of the USD strength will be deafening in US Q2 earnings (JPM report Thursday) and some are even making contrasts with the moves seen in the USD in 1980-1985 where it rallied 60% on a trade-weighted basis before we saw massive intervention and the USD went on a multi-year decline.
A stronger USD is typically deflationary, but we can see the cost of USD-priced goods going higher and higher and any country with elevated USD-denominated debts is feeling it right now.
This time around the USD is a big momentum trade – the USD holds some true qualities right now.
It is once again the default portfolio hedge against equity drawdown – above the JPY, gold and Treasuries
Trend-following funds (CTAs) are long USDs as price trends stronger, as are real money accounts – that position is building but not quite at extremes, especially from leveraged accounts.
Under the USD ‘smile’ theory, a global growth slowdown and liquidity withdrawal favours long USDs
The cost-of-living crisis and impact on households seems far more pronounced in Europe and the UK
A flatter US yield curve favours long USD positions
China’s Covid zero policy sees capital out of the China proxies and copper is in a bear market – the USD works well here.
Relative nominal and real rate differentials are now working in favour of long USD positions – where do you go for returns in the bond market? The attractiveness of one’s capital markets moves the currency and that is working for the USD
The US lets rip with its June CPI print tomorrow – the street is betting it will be above the consensus of 8.8% - above 9% and the USD could fly
Emerging Markets (EM) FX is trending weaker, especially with EM bond returns some of the worst on record in 2022 – I guess we see capital return back to the safety of the US – its is the least shabby house on the block. Watch USDCNH as it heads into range highs.
We can go on, but the flow of capital doesn’t lie, and price is always the final arbiter of truth, especially when dealing with leverage.
The USD has to be on everyone’s radar – we know client flow is certainly looking for a turn lower, but whether that comes anytime soon may require a far weaker CPI print tomorrow. However, while global growth is still a major factor and the Fed keeps myopically focused on hiking the USD, in my view looks destined for higher levels.
The August Jackson Hole Symposium could be very interesting indeed
A stronger USD is typically deflationary, but we can see the cost of USD-priced goods going higher and higher and any country with elevated USD-denominated debts is feeling it right now.
This time around the USD is a big momentum trade – the USD holds some true qualities right now.
It is once again the default portfolio hedge against equity drawdown – above the JPY, gold and Treasuries
Trend-following funds (CTAs) are long USDs as price trends stronger, as are real money accounts – that position is building but not quite at extremes, especially from leveraged accounts.
Under the USD ‘smile’ theory, a global growth slowdown and liquidity withdrawal favours long USDs
The cost-of-living crisis and impact on households seems far more pronounced in Europe and the UK
A flatter US yield curve favours long USD positions
China’s Covid zero policy sees capital out of the China proxies and copper is in a bear market – the USD works well here.
Relative nominal and real rate differentials are now working in favour of long USD positions – where do you go for returns in the bond market? The attractiveness of one’s capital markets moves the currency and that is working for the USD
The US lets rip with its June CPI print tomorrow – the street is betting it will be above the consensus of 8.8% - above 9% and the USD could fly
Emerging Markets (EM) FX is trending weaker, especially with EM bond returns some of the worst on record in 2022 – I guess we see capital return back to the safety of the US – its is the least shabby house on the block. Watch USDCNH as it heads into range highs.
We can go on, but the flow of capital doesn’t lie, and price is always the final arbiter of truth, especially when dealing with leverage.
The USD has to be on everyone’s radar – we know client flow is certainly looking for a turn lower, but whether that comes anytime soon may require a far weaker CPI print tomorrow. However, while global growth is still a major factor and the Fed keeps myopically focused on hiking the USD, in my view looks destined for higher levels.
The August Jackson Hole Symposium could be very interesting indeed
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