Richie Rich and Dollar (1977)
If the market keeps believing, for another month or so, that the Fed has pivoted , it follows that any hawkishness from other Central Banks will hurt USD in the short term.
There are Fed speakers out this week so they may knock the idea on the head before it gets too ridiculous, but there was a broad stock market rally last week and that usually gets at least a few weeks of follow through.
As such, Dollar could be the dog for a month or so. BTP spreads coming in would help this, boosting the Euro - let’s see if the Friday snapback continues into this week.
Double top for BTP/Bunds? :
Sunday Twitter Poll
FinTwit is just about bearish - but no real division.
(Of the last 18,000 tweets containing SPX, $SPY or $ES, those including bull/bulls/bullish/bear/bears/bearish extracted, then % totals of each. Started April 2022; plan to track % of times Twitter is correct compared to the following weekly close. Tracking data will be added after the first 20 weeks.)
Roadmap
Monday - US ISM Manufacturing. This isn’t the preliminary data so not fresh; it’s more about how the market reacts to it. Unless Pelosi gets shot down (!), it’s to be expected that poor data will be shrugged off.
Tuesday early morning - RBA interest rate decision. Expecting hawkishness; should help continue the rally v’s USD while the belief holds that the Fed have turned dovish.
Thursday - BoE interest rate decision. UK PMI’s are pointing to a poor H2 2022. Hard to find a CB in a trickier spot.
UK Manufacturing PMI - disaster & about to head into contraction:
Time to stop tightening the money supply? But…..UK inflation YoY…another disaster:
Interested to see how GBP reacts. Given potential for a bit more USD weakness, I’m eyeing a long.
Friday - US NFP and Canadian unemployment data.
We’re back in the bad news is good news cycle just now: any slightly poor data = a stronger argument for the Fed to pause so bullish for the market.
Well that’s the thought…..in reality, the Fed has repeatedly said that inflation data will lead them. It’s just a question of how far the rally goes before reality sets in again.
Equities:
As is the norm, the tone has started to turn bullish now that there’s been a 15%+ rally.
Quite a few levels being called just above as well.
So, price either reverses immediately, without hitting those levels, or punches right through and then sets up the short.
I’m waiting to see if there’s a punch through accompanied by increasing clamour of bullishness (perhaps alongside a positive new story). Ideally (for the trade…), oil and Nat Gas head higher too.
This would equal the market getting bullish on the idea that the Fed is going to stop fighting inflation/ has done enough to fight it when commodity prices are heading higher again.
This spells out that the market is wrong. Nice short equities setup.
Timing-wise, we’ve got July out of the way; seasonally one of the strongest months, as noted at the start of it. August is usually a grind and September often has an early pop before cracking.
So, August may be a time for tactical longs on any weakness into support with the idea that price will be in a better place to short near the end of the month/ into early September.
Well that’s a rough roadmap….now we see what trades set up.
FX:
Although USD continued its retracement last week, there’s a key break happening in EURUSD on the monthly that makes the next few months significant. If the Euro breaks down, that’s EUR and JPY moved into convincing new ranges. You would expect other currencies to follow and a real currency crisis to develop over the next 12 months or so.
EURUSD monthly, looking at that long term support that was broken, at least for a month, on the July close:
Conversely, many other currencies put in stronger reversal candles on the monthlies. Given the environment discussed above, there’s a decent chance they get at least some early August follow through.
GBPUSD monthly is one of the most interesting. If it sticks its head above 1.22, that should form a decent base to move higher for a few weeks:
Precious Metals:
A strong turnaround for precious metals over the last few weeks. Longer term, there’s still a lot of damage to be repaired, but there’s certainly some buying interest at the levels they’ve just bounced from so worth marking them up in case price heads there again and forms a more constructive base.
XAUUSD weekly:
Trades Update
This has moved to a free Thursday trades record, also available (most weeks) on Substack:
Risk Index
Under 50 = bullish, over 70 = bearish, over 90 = potential correction within 6 months
The Risk Index is a combined read of the trends of 68 intermarket spreads and indicators, from credit spreads to car sales in Spain.
Note that the current bear market was signalled 10 months ago (see reference down the bottom of this post at start of this year here) so the expectation is that the Risk Index will become increasingly bullish the longer this move down lasts.
1-year look-back:
If the market is working out a bottom, signs are that it will take some time to do so; no need to jump on just yet.
Themes to Watch
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