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April 10, 2015

A bit doo-lally

Filed under: Forex Strategies — Tags: — admin @ 4:43 pm

Macro Man isn’t quite sure what to make of things these days.   Since the poor, illiquid payroll data, the USD has surged back, with punters evidently having seen the downdraft as a buying opportunity.

Curiously, the DXY retracement has not been matched by any sort of move in US rates; EDZ5, for example, is still pretty close to its highs of the year (albeit a few ticks off of last Friday’s levels.)

Macro Man frankly didn’t see that much in the Fed minutes to justify the rebound in the dollar, insofar as he has always assumed that the Fed is keeping their options open  as much as possible.   Perhaps others in the market needed a reminder of that fact.   Moreover, it’s worth remembering that FX is always a story of relative rather than absolute relationships, and for better or for worse the $ still looks like the best game in  town- particularly if the economy picks up steam in the current quarter, as your author expects.  He suddenly feels rather underexposed to the theme, such is the vehemence of the dollar recovery this week.

No doubt there will always be some observers who will feel that the Fed’s hands are tied by goings-on elsewhere.  Forget the idea that Europe might enjoy an upside growth surprise (which would surely give back some of what the strong dollar taketh away) or that Asian stocks are going a bit crazy.   Indeed, China appears to be using the equity market as a policy tool to goose domestic demand, and as a few of you have noted, things have gone a bit doo-lally.  

Of course, nothing could ever go wrong with assuming ad infinitum asset market growth, and the Federal Reserve needs to keep uber-easy monetary conditions out of a sense of solidarity with those economies stumbling through weak growth.  Or so, no doubt, some commenter called “搞笑的钱” will no doubt tell us…..


  1. If we have to discuss the Fed, I will state the opinion that Yellen's Fed is now simply emulating Carney and the BoE after the big run-up in £. The Fed wants to stall as much as possible here, until the global capital markets finally realize that SPX earnings are a bit cack and the US economy isn't reaching escape velocity and then punters will do the Fed's work for it by selling US equities, $ and even Treasuries, cf. what happened in the UK in second half of 2014. With the pressure relieved and DX at least 10% lower, the Fed can then continue to inflate the usual bubbles.

    Comment by Leftback — April 10, 2015 @ 5:30 pm

  2. Very amusing, MM.

    It is only going to take one real stinker in the Q1 earnings season to
    dampen enthusiasm for US equities for a while. Next week we get BAC,
    C, AXP and GS earnings, not too sure if those will blow the doors off
    after a challenging bond trading environment.

    The big one, of course, is AAPL on 4/23, on a huge earnings report
    day. It's the most important stock in the major indices, so if they
    miss (or merely under-deliver on the whisper number), the rest will
    all get dragged down in the undertow. Why do we think this will
    probably happen? Start with the USD, think about the growth of their
    Asian competitors and go from there. Too expensive to short AAPL or
    CAT, so just short QQQ.

    But perhaps earnings will go up forever and it will be 大团圆结局 after all.

    In answer to anon, yesterday, LB is still dollar bearish but
    week, therefore avoiding Cold Steel, although LB is exposed to a
    higher dollar via emerging markets and Europe. But looking at the
    performance of those markets recently, and recalling that equity
    markets tend to rally ahead of the respective currency, we're not too
    bothered at the moment.

    Comment by Leftback — April 10, 2015 @ 5:41 pm

  3. I'm with MM on that. And the other extension of it is that as the risks of shock caused by Fed policy diminish so does the need to examine their every potential bp change.

    Federale naval gazing may be distracting us from more exciting things going on in the world.

    Comment by Polemic — April 10, 2015 @ 5:50 pm

  4. FM, not to be pedantic, but the Fed is not easing and Brazil actually put rates up a few weeks ago.

    I really don't see how you cannot characterize the US as not recovered from crisis conditions. Does the economy remain impaired relative to pre crisis trends? Yes, but that has zero to do with monetary policy.

    Moreover, I really believe that you and others are missing the point that some on the Fed (perhaps led by Fischer, perhaps?) have at least a token realization that the correct solution to a global financial crisis precipitated by asset bubbles is NOT to blow up as many more as possible.

    The apparent belief that the only alternative monetary policy prescriptions are ZIRPworld or a restrictive stance is badly misplaced; if anything, the impairment of the credit impulse makes it safer, not less safe, to bump rates modestly, because there's not a lot of growth coming from rate-sensitive sectors anyways.

    Comment by Macro Man — April 10, 2015 @ 6:41 pm

  5. Farmer,

    The rising DXY is puzzling. Is it because of Greece, since EUR led the downward spiral? And ECB's policy meeting is next week, maybe it is the expectation of Mario Draghi's big mouth, scaring the hell out of dollar bears!

    Finally FM, some good insights on equity and CB. And it is nice to learn some Chinese here. lol

    Comment by Anonymous — April 10, 2015 @ 6:50 pm

  6. Whilst I had to smile at this: "搞笑的钱", I think MM got it wrong in the last paragraph.

    The point is that we do know something can (will?) go horribly wrong with ad infinitum asset growth – and that's why I believe CBs are now somewhere between a rock & a hard place. If they normalise monetary policy the economy will not recover. If they don't normalise they stoke bubbles.

    So what will they do? I believe they will do more of the same. Every major CB is easing – that tells you something. This 'bubble-trend' will continue until it ends. That's when the fun will begin.

    I'm just surprised so many people insist on adopting a viewpoint that assumes normal market functioning, rather than the structurally impaired markets we see before us on a daily basis.

    Onto the markets… As usual I closed my US equity positions too early. Because I like punishment, I also took losses on some FX mean-reversion trades (if anyone was long USD, please email me next time & I'll wire you the funds direct & save us all some time). Have a nice w/e.

    Comment by 搞笑的钱 (FunnyMoney) — April 10, 2015 @ 6:56 pm

  7. After the watching the S&P climb and climb with help from various sectors; anyone entering the US stock at these levels is swallowing a gigantic poison pill.To little too late to try and pull in QE, its gone.

    Comment by amplitudeinthehouse — April 10, 2015 @ 6:58 pm

  8. "Macro Man isn't quite sure what to make of things these days"

    Let me take a guess.The feds showing solidarity among others to keep the S&P from losing future returns and if any thing comes close to obstructing dividends at these low rates after such a long period of protecting the S&P that they're going to have to swallow a poison pill; one that locks them into a wall street market that only wants to take gains year on year without objections from CB around the world. Do as we say, not what we do.

    See ya Wall Street boys…the footy's on.

    Comment by amplitudeinthehouse — April 10, 2015 @ 7:20 pm

  9. 搞笑的钱 is a really terrible sounding Chinese pseudonym btw, funnymoney.

    Comment by Anonymous — April 10, 2015 @ 8:08 pm

  10. FT:
    Would anyone in his right mind buy gold because the apple watch edition is sold out?

    Funny money anyone?

    Comment by Anonymous — April 10, 2015 @ 8:19 pm

  11. I wonder if 搞笑的钱 picked up the name at a Shanghai branch of Scores.

    Comment by Polemic — April 10, 2015 @ 9:00 pm

  12. 搞笑的钱
    LOL! :)

    Comment by theta — April 10, 2015 @ 9:46 pm

  13. "Just keep buying, then buy some more, and buy some more after that"

    Anon, yesterday defined mom 'investing' …LOL …the behavioural elements are already there to see as every guy who raises pigs for a living suddenly knows how to buy 'companies'. Of course the mom definition means it keeps going until well runs dry one day and then it's landslide ahoy.

    Comment by checkmate — April 10, 2015 @ 10:38 pm

  14. I think we have huge tidal flows from long term reserve managers that swamp shorter term correlations. This usd buying is part of that bigger picture.

    Comment by Polemic — April 10, 2015 @ 11:13 pm

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