USD Comeback - Watch (out) Gold and EEM

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The mighty USD has regained momentum over past sessions. In FX world you have to buy something and automatically sell something. So, what do you want to own here as a global investor when it comes to FX?

  • Long GBP as we watch “tired” Theresa May on TV telling the people fairy tale stories?
  • Long EUR as Macron has lost control, the Italian saga continues and Merkel “leaving”?
  • Long USD as Trump continues his global march of US domination?

We have no great views on FX here, but we note the DXY is about to break out of the consolidation we have seen over past months. We are trading right at resistance levels, but the 98 area would be THE big level to watch for.

 

The Euro looks rather tired. There is no support from Draghi, nor anything else, so watch a possible break down of big levels a little lower. On the other hand, having views on the GBP is pretty much impossible, but sterling continues trading one way for now. Europe lacks “fizz”, irrespective what  FX you look at.

 

Our logic for a gold long a few weeks ago, played out ok, but given the recent USD momentum, we are becoming less interested in gold for the short term at least, despite the fact correlation between gold and the USD has come off lately. Note how gold still trades inside the positive trend channel, but that 200-day average is huge resistance to watch out for.

 

Gold volatility has come off recently, so for the longs not wishing to exit, gold volatility isn’t overly expensive here.

 

As we have been suggesting for some time, the Emerging Markets space has outperformed Developed Markets lately, but given the USD showing strength again, as well as the EEM still trading inside the negative channel (upper part of the channel), we would look to shave off relative longs in this space.

 

The EEM relative long play is up some 7% from October lows. That’s a decent “risk neutral” move, even if you didn’t catch the lows.

Source: charts by Bloomberg