Market Focus: FXWW

EUR
EUR(1.2282) USD bid tone remains as a result the euro is being sold on rallies and thus its advisable to remain sidelined until this plays out. 1.22 might be on the horizon in the near term so possible point to start scaling into long euro. For now its defense and capital/PnL preservation and as mentioned yesterday the Bund/UST spread continues to widen.

GBP

From yesterday’s data, unemployment rate come in a tick higher at 4.4%, but plenty of headlines surrounding Brexit and the broader USD move continues to make it difficult to trade Cable for now. Post FOMC minutes also caused Cable to trade (and the rest of the USD) choppy but EURGBP seems to be finding some support near 0.8800 for now. A clear break in the DXY above 90.20/25 shall cause further USD short squeeze, and shall be watched carefully, but I would like to continue to buy dips in the cross near mid 0.87’s for now. Tonight we have ECB minutes and UK GDP out and shall be in focus.

AUD
Trades terribly as the market wakes up to the ongoing inversion in rate differentials and the market scales back lofty European expectations as PMIs underwhelm. Must admit getting paid to hold shorts is pretty nice.
Stay short AUD against a basket.

I have a strong sense of De ja vu at the moment; at the start of last year everyone was so bulled up USD that they could hardly see straight. Now it’s the other way around with heavy consensus on Short USD against EUR, JPY and EM with growth seemingly set to continue ad infinitum. I remain constructive on the USD but more importantly I expect idiosyncratic themes to reassert themselves as the year progresses. Currently EM/AUD are benefiting from a weak USD but things remain extremely vulnerable to higher rates and as the USD turns then this double whammy will be very damaging. And if the Fed does derail things and has cause to pause then this too should be USD positive. One reason for USD weakness being passed around is sudden concern around US twin deficits but this doesn’t pass the logic test. Huge new energy reserves, the fact that the new debt i is targeting productivity via infrastructure, a POTUS with a huge focus on exports and repatriation of manufacturing, and the worlds reserve currency will all insulate the USD…plus its kinda loopy to worry about the deficits which won’t materialise if the USD is going to continue getting trashed. My view is that that the dislike of Trump is playing a part in the USD weakness and clouding investor’s judgement. With the market no longer expecting it, 2018 could well prove to be the USD bull market 2017 promised.