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Dollar Blues

Marc To Market's picture




 

Disappointing US economic data and high volatility in the German bunds kept the dollar under pressure.  Over the past week the greenback fell against all the major currencies, save the New Zealand dollar (where interest rate cut expectations have built for as soon as next month).  Most currencies from the emerging markets rose against the dollar, except for a handful of Latam currencies, including Argentina, Brazil, Colombia, and Peru.

 

While the dollar is still vulnerable to some additional near-term losses, we argue on both fundamental and technical grounds, it is premature to invest as if a new bear market for the dollar has begun.  

 

The fundamental case for the dollar was based on divergence of monetary policy.  This piece remains in place.  As the Wall Street Journal survey found, an overwhelming a majority of economists (73%) expect the Fed to hike in September.  Meanwhile, there is little doubt that the ECB and BOJ will be continuing to expand their balance sheets under versions of QE well past then.

 

From a technical perspective, the dollar's losses in recent weeks must be seen in the context of the previous 11-month rally.   The Dollar Index rallied 27.5% between May 2014 and March 2015. The pullback has been about 7.4%.  It has not reached the minimum Fibonacci 38.2% retracement that is often looked for after a large move.  That objective is found near 92.20 while the Dollar Index has only approached 93.00 thus far. The 92.00 area also corresponds to an objective of the possible double top carved out in March and April  (neckline near 96.25).  There is not compelling technical evidence suggesting that a low is at hand.  Resistance is now seen near 94.00.

 

As we have often noted, the Dollar Index is not a true trade-weighted basket.  Two of the top four US trading partners, (Mexico and China) are not included, and the basket is too heavily weighted to the euro and currencies that move within its orbit, like the Swiss franc and the Swedish krona.  The euro itself has retraced more than 38.2% of its decline that began last year. That level is found near $1.1275.  It should act as support now.   The next retracement objective (50%) and resistance is seen in the $1.1500-30 area.  The measuring objective of its potential double bottom is seen around $1.1600-50.

 

The dollar remains stuck in a narrow range against the yen.  Resistance is seen in the JPY120.00-30 area.  Support is pegged in the JPY118.50-80 area.  The technical indicators we look at are not generating strong signals.

 

Sterling has not only retraced 38.2% of its recent multi-month decline, but it is approaching the 50% objective near $1.5880.  Above there, the 61.8% retracement is found around $1.6180-$1.6200.  Further out, some are talking about a potential head and shoulders bottom in sterling that has been carved out this year.  The neckline is found near $1.5550.  It is a ten-cent pattern and projects toward $1.6550.   While technical indicators are consistent with additional gains, this might be a bit much, based on current fundamentals. The first sign that caution is in order is if and when sterling closes below its 5-day average, which now comes in near $1.5710.

 

The Canadian dollar is benefiting from the weaker general tone for the US dollar.  Technical indicators like the RSI and MACDs are set to turn in the greenback's favor but have yet done so.  A move above $1.2100-10 should be respected as suggesting down move is exhausted.  The US dollar has not distanced itself from the CAD1.20 area, which corresponds to its 38.2% retracement objective of the slide that began last year. A break of CAD1.1950 may encourage near-term participants to look for the 50% retracement that is found near CAD1.1730.  The 200-day moving average is near CAD1.1770.

 

Like with the Canadian dollar, the technical indicators for the Australian dollar are close to crossing but haven't yet.  There is trend line support just above $0.7900.  The 38.2% retracement of the slide that ended in early April is found near $0.8285; near the 200-day moving average ($0.8320).  Unless the Aussie falls back below that support, higher levels should be anticipated.

 

The July light sweet crude oil futures contract was little changed on the week.  Although the MACDs have cross lower, prices remain fairly resilient.  Intra-day dips below $60 a barrel have not been sustained.  The early June OPEC meeting is around the corner, and with more than a 25% recovery in prices over the past two months, there is little urgency for OPEC to cut output, unless it is part of a larger agreement, which may still prove elusive.

 

The 38.2% retracement of the decline since last summer is roughly $66.50.  The potential double bottom projects toward $69, which is near the 200-day moving average ~$68.50).  The 50% retracement is about $72.35. 

 

The US 10-year Treasury yield rose to 2.36% at the start of last week.  The combination of weak US data, stabilization of the German bund (albeit in volatile trading) and well received quarterly refunding saw yields back off as the week progressed.   The 10-year benchmark yield fell 14 bp on the week, nine of which were seen before the weekend.  Yields can decline a bit further though a break below 2.0% would be important from a technical perspective.  

 

Since the second week in April, the S&P 500 has been mostly confined to a 2080-2120 range.  It tested the lower end on May 6-7 and probed the topside on May 14-15. Technical indicators do not appear to be particularly helpful now.  The VIX is sitting just above 12.0.  It has not been below there since last December.  If the VIX is going to hold that support, then the SPX 500 will likely punch lower in the coming days.    

 

Observations from the speculative positioning in the futures market: 

 

1.  There were four gross speculative position adjustments in the Commitment of Traders reporting week ending My 12.  The gross short euro position was reduced by 17.9k contracts.  It was the third consecutive decline.  It stands at 222.4k contracts now, almost a 50k reduction since peaking in late-March.  The gross short yen position was cut by 11.6k contracts,  about three-quarters of what was added in the prior week.  There are still 61.4k short contracts in speculative hands.  Both the gross long and short Mexican peso positions were adjusted by 10k contracts or more.  The longs grew by 10k contracts to 34k, while the gross shorts were cut by 13.1k contracts, leaving 61.1k.  

 

2.  The clear pattern among speculators was to reduce gross short currency futures positions.  The only exception was sterling, where the short position rose by 9.2k contracts to 68.3.  The gross short sterling position in the second largest behind the euro.  It is rather surprising given the post-election euphoria.   The gross longs were mixed, with euros, yen, and Canadian dollars pared.  However, these position adjustments paled in comparison to the changes of the gross shorts.  

 

3.  Speculators extended the Swiss franc and Australian dollars net long positions.  In both cases, it was more a reflection of shorts covering than new longs being establish.  

 

4. The net long speculative light sweet crude oil position as shaved by 5.5k contracts to 320.2k. Longs were cut by 18.3k contracts (to 512.4k), and the shorts were cut by 12.8 contracts (to 192.2k). 

 

5.  The net short speculative position in 10-year US Treasury note futures was cut by 51k contracts to 132k.  This was a function of 9,6k contract build of the gross long position to 319.1k and a nearly 10% drop (41.1k contracts) in the gross short position, leaving 451.5k contracts.  

 

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Sat, 05/16/2015 - 15:13 | 6100880 whoisjg
whoisjg's picture

The intense criminality by the bankers is because they know within a year things will explode and no one will be able to sort through the mess, kinda like the banking scandal investigation notes were all in the world trade center on 9-11

 

It is the end times, the end game, get out of America with a bag of cash while you can and head for new zealand because baby it's about to get real ugly (chuds and zombie in the street ugly)

 

You think ferguson protrests were scary? Those people were well fed!

Sat, 05/16/2015 - 15:09 | 6100862 basho
basho's picture

"Taalk of US recession is over the top when unemployment, broadly measured is.."

going down?

lmao

Sat, 05/16/2015 - 14:09 | 6100680 Infinite QE
Infinite QE's picture

"Fed hike in September still seems most likely scenario."

You on some medical-grade dope or something?

Sat, 05/16/2015 - 12:50 | 6100509 spinone
spinone's picture

Cougar W sai dit best 3 years ago:

 

These fuckers are going to print hard enough to wake the dead. They'll print like mo'fos, print like mad men, print like fly pimps. Print until their eyes bleed.

They will print via the swaps, via bank bailouts and mergers, via fixed Treasury yields, via real honest-to-God negative interest rates, via loans to banks on no collateral, via payroll tax reductions, and in the end via actual fiat paper instruments which they might very well drop in bails from actual mutherfucking helicopters.

They will not give two figs what anyone thinks.

Here is why.

Because this is the Goddamned end of it my friend. There is no accounting beyond this point. There will be no history of it. No one to take notes of rates of exchange, or of the graft and violence, nobody to worry about the deficit or the GDP or the national debt of any nation large or small under the blazing Goddamned sun.

End. Of. It. Does anyone bitch about how Rome totally debased their coinage at the end? Hell no. But whoever did it had enough to hand and grabbed some land with a nice vineyard and sat back and waited for the Middle Ages to start 700 years further on.

And that's what a singularity is about. Anything that passes through is striped of all meaning. Nothing we think is important now will remain so beyond the event horizon. Nobody will remember, nobody will write about it, nobody will be held to any standard. Ever for evar.

So yeah, they'll print like the mad crazed terrorists they are. Because they have nothing to lose, and maybe something to gain. Maybe a dollar. Maybe a day. Maybe a slim chance to escape with some of the loot. Whatever the fuck advantage they see in it, for themselves and their elite crap wanking buddies, they will full-on-full-time-fucking do it to advantage.

Watch for it, Dawg. It's totally on this time, on like Donkey Kong. And when the dust is settled in a generation hence it's going to have become  another unbelievable episode among the ages of men.

Sat, 05/16/2015 - 12:24 | 6100453 monopoly
monopoly's picture

I have been screaming it here for over 4 years. These idiots at the Fed are trapped, tied up, boxed in, they cannot move. They WILL NOT raise interest rates this year. And....if they do try a quarter point just to get a feel for the waters, watch the averages take a swan dive that we have not seen in years. 

Raise rates. What a freaking joke. Not gonna happen guys and gals.

Gold at 1,225 looks good for now. We need to get past 1,250 to get new investors into gold, silver and miners. That will be the next Maginot Line.

No one ever said the Truth is easy.

Have a great weekend.

Sat, 05/16/2015 - 12:30 | 6100421 Fukushima Fricassee
Fukushima Fricassee's picture

The FED will not "hike" shit, ever, period. They will print to infinity and launch negative rates. Stop floating the jaw bone "hike" bull shit. These criminal fuckers are not going to put a margin call on the shits that butter their dirty bread.

Sat, 05/16/2015 - 14:10 | 6100682 Infinite QE
Infinite QE's picture

He's a bankster minion spreading the religion. Fade.......

Sat, 05/16/2015 - 11:45 | 6100366 ISEEIT
ISEEIT's picture

"The fundamental case for the dollar was based on divergence of monetary policy.  This piece remains in place.  As the Wall Street Journal survey found, an overwhelming a majority of economists (73%) expect the Fed to hike in September."

 

Blah, blah, blah..

 

I respect you Marc. I respect that you are a guy who plays this game, and don't hold that against you.

 

What percentage of "an overwhelming majority of economists" predicted the crash and subsequent  'state' of the economy (globally) that humanity is currently being subjected to?

Surely Marc...You know damn good and well this is madness?

Sat, 05/16/2015 - 13:01 | 6100525 Bay of Pigs
Bay of Pigs's picture

@ISEEIT

This guy will never amit that. He is a Wall Street shill and actually believes that the "markets" trade freely and fairly.

He simply regurgitates this TA which is based on nothing fundamentally sound.

Sat, 05/16/2015 - 12:24 | 6100439 CarpetShag
CarpetShag's picture

Yes, but economists have such sophisticated computer models, you can't believe.

Sat, 05/16/2015 - 11:37 | 6100348 lordbyroniv
lordbyroniv's picture

they control the horizontal and the vertical

its all a rigged game

what god wants 

god gets

 

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