USD: Price Action Suggest Correction Has More To Go, Data Will Have A Say
The BBDXY range overnight was 1207.98 - 1212.47, Asia is currently trading around 1208. The USD’s slide lower finally stalled at the back end of last week and some profit-taking has been seen. Monday’s US-EU trade deal was seen as a big loss for the European Union and this has provided the USD bounce with further tailwinds. There is lots of event risk coming up this week with FOMC tomorrow morning and NFP on Friday being chief among them. Price action does suggest this correction higher in the USD could have more to play out.
- Daily Chartbook on X: “In "a survey of 800 institutional investors ... The proportion of respondents expecting the dollar to weaken amid growing US fiscal concerns is near an all-time high -Goldman Sachs.”
- Andreas Steno Larsen on X: “The US has got the softest inflation surprises on Earth. That should impact the FOMC tomorrow.” See Fig. 1 below.
- (Bloomberg) - The dollar is starting to look ripe for a resurgence as it reconnects with the fundamentals it long ignored. Positioning is stretched, correlations have frayed, and price action is increasingly detached from reality. The longer markets dismiss these fundamental signals, the more turbulent the eventual recalibration could be. Fundamentals are patient, but they don’t go away -- and when they come calling, the dollar may have the last word.
- The Long View on X: “Small short Euro position here. NFP should nip some short term expectations for aggressive easing for now. Plus it’s just had a huge run. Expect some profit taking as it’s completely broken all connections to interest rate differentials as well.”
- Lance Roberts on X: “While the dollar has been under pressure this year, after a sharp advance last year, such is just part of its long history. Weak periods become strong periods and vice-versa.”
- There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
Data/Events : MBA Mortgage Applications, ADP, US Treasury Quarterly refunding, GDP, Pending Home Sales, FOMC.
Fig 1: Citi Surprise Index
Source: MNI/@AndreasSteno
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NEW ZEALAND: Business Activity & Confidence Up, But Still Off Cycle Highs
The New Zealand ANZ business activity and confidence measures rose in June. On activity we moved back to 40.9, from 34.8 in May, while confidence rebounded to 46.3, from 36.6 prior. The improvement in June follows move lower in these headline indices since the end of Q1. We remain off cyclical highs for both measures, activity reached 50.3 in Dec last year, while confidence was at 65.7 in October last year. The Q2 averages for both activity and confidence were below the Q1 outcomes.
- In terms of the detail, the sub-indices ticked higher, with exports up to 13.9, while investment rose to 19.9 (from 11.6 in May). Costs and wages also rose. The cost sub index to 79, while wages were at 76.1, still sub recent highs for this index.
- The construction outlook improved, but again these indices are still sub recent highs. Employment printed at 10.8, which compares with an earlier high of 18.1 (April this year).
- Pricing intentions rose to 46.3 from 45.4. Inflation expectations were unchanged at 2.71%.
- ANZ noted: “In terms of what firms are actually experiencing, there’s been a bit of a slump recently in both activity and employment. While economic growth in 1q was decent at 0.8% q/q, the omens for 2q are not looking nearly so positive” (via BBG).
- This is consistent with the softer average readings in the headline indices for Q2.
USD: Opens In Asia Back Under Pressure
The BBDXY range Friday night was 1192.42 - 1197.35, Asia is currently trading around 1193.50. The BBDXY again found some demand towards the 1192.00 area, the USD bounced when Trump ended trade talks with Canada on Friday. This has not followed through and the USD opens in Asia back under pressure, -0.2%.
- Robin Brooks on X: “The Dollar is down 10% this year (lhs) and S&P 500 is up 5% (rhs). Expectations for Fed cuts are partly behind this, as @BobEUnlimited flags, but above all this is markets assuming the trade war with China is over. If that's wrong, the Dollar rallies lots and S&P 500 craters...”
- “China is bumping up against the "impossible trinity." By choosing not to devalue in response to US tariffs, it also can't ease monetary policy to counter rising deflationary pressure. China has tied its hands. Not devaluing means it chooses deflation…”
- Andreas Steno Larsen on X: “Trump: “I don’t want to pay for 10-year debt at a higher rate.” If that’s not an obvious debasement trade, what is?” The graph below shows what happened in Japan in 2012-2013 when a similar policy experiment was undertaken.
- The BBDXY has broken convincingly now below 1200, this close could prove to be significant and points to the potential start of another leg lower, first target 1150 and then beyond.
- The USD should continue to be met with supply on bounces back towards the 1210/1220 area, only a sustained break above 1240 would start to get the bears worried.
- There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. Data/Events : MNI Chicago PMI, Dallas Fed Man. Activity, NFP on Thursday will be very important.
Fig 1: Abenomics
Source: MNI/@AndreasSteno
MNI: **CHINA JUN MANUFACTURING PMI 49.7 VS 49.5 IN MAY
- **CHINA JUN MANUFACTURING PMI 49.7 VS 49.5 IN MAY
