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Gains should be limited on EURUSDEURUSD - Intraday - We look to Sell at 1.0043 (stop at 1.0106) The medium term bias remains bearish. There is scope for mild buying at the open but gains should be limited. Trend line resistance is located at 1.0050. Resistance could prove difficult to breakdown. We look to sell rallies. Our profit targets will be 0.9899 and 0.9850 Resistance: 1.0050 / 1.0400 / 1.0800 Support: 0.9900 / 0.9800 / 0.9700 Risk Disclaimer The trade ideas beyond this page are for informational purposes only and do not constitute investment advice or a solicitation to trade. This information is provided by Signal Centre, a third-party unaffiliated with OANDA, and is intended for general circulation only. OANDA does not guarantee the accuracy of this information and assumes no responsibilities for the information provided by the third party. The information does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. You accept that you assume all risks in independently viewing the contents and selecting a chosen strategy. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, Oanda Asia Pacific Pte Ltd (“OAP“) accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore customers should contact OAP at 6579 8289 for matters arising from, or in connection with, the information/research distributed.'
Short
by OANDA
1
Today’s Notable Sentiment ShiftsEUR – The single currency weakened across the board on Monday, pushing EURUSD below parity as concerns surrounding Europe’s energy crisis deepened further as Russia stated it would shut the Nord Stream 1 pipeline for three days at the end of the month. USD – The dollar rose across the board on Monday as investors shied away from riskier assets amid growing fears that interest-rate hikes in the United Stated and Europe, aimed at curbing inflation, would weaken the global economy. Indeed, Caxton argues USD strength is “risk being taken off the table after the market got a reality check from last week’s Fed speakers that an imminent dovish pivot is off the cards. With investors now clearly expecting a relatively hawkish message from Fed Chair Powell at Jackson Hole on Friday, it’s a perfect cocktail of risk-aversion and a hawkish Fed for the greenback to bound higher, especially when growth worries, especially in Europe, continue to mount.”
by thunderpips
4
Preferred trade is to sell into rallies on EURUSDEURUSD - Intraday - We look to Sell at 1.0095 (stop at 1.0154) The medium term bias remains bearish. Price action has broken from the previous formation. A firmer opening is expected to challenge bearish resolve. Resistance is located at 1.0100 and should cap gains to this area. Preferred trade is to sell into rallies. Our profit targets will be 0.9956 and 0.9925 Resistance: 1.0100 / 1.0400 / 1.0800 Support: 0.9955 / 0.9900 / 0.9800 Risk Disclaimer The trade ideas beyond this page are for informational purposes only and do not constitute investment advice or a solicitation to trade. This information is provided by Signal Centre, a third-party unaffiliated with OANDA, and is intended for general circulation only. OANDA does not guarantee the accuracy of this information and assumes no responsibilities for the information provided by the third party. The information does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. You accept that you assume all risks in independently viewing the contents and selecting a chosen strategy. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, Oanda Asia Pacific Pte Ltd (“OAP“) accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore customers should contact OAP at 6579 8289 for matters arising from, or in connection with, the information/research distributed.'
Short
by OANDA
NAS100 Daily Outlook | August 22Hi Friends, Here are my thoughts on NAS100... weekly - Bearish Daily - Bearish H4 - 13160 zone have broken hence bearish trend has continued and we expect price to find support at 12289 level H1 (a) - Price is currently at 13044 support area hence i expect a retest of 13165 level. This is the place to look for entries H1 (b) - Break and closure of H1 price bar below 13028 means that price may like see 12979 and 12889 in no time. Watch out for fake outs and plan for them accordingly by waiting for good confirmations and insisting on good risks and trades management. Join my live trading sessions today at 4:45PM GST.
FX:NAS100
by Kingsley_lotanna
1
Resistance located at 1.0150 expected to cap gains on EURUSDEURUSD - Intraday - We look to Sell at 1.0144 (stop at 1.0183) Following yesterday's bearish candle, the overall trend lower looks set to continue today. Price action has broken from the previous formation. A firmer opening is expected to challenge bearish resolve. Resistance is located at 1.0150 and should cap gains to this area. Preferred trade is to sell into rallies. Our profit targets will be 1.0051 and 1.0030 Resistance: 1.0150 / 1.0400 / 1.0800 Support: 1.0050 / 1.0000 / 0.9950 Risk Disclaimer The trade ideas beyond this page are for informational purposes only and do not constitute investment advice or a solicitation to trade. This information is provided by Signal Centre, a third-party unaffiliated with OANDA, and is intended for general circulation only. OANDA does not guarantee the accuracy of this information and assumes no responsibilities for the information provided by the third party. The information does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. You accept that you assume all risks in independently viewing the contents and selecting a chosen strategy. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, Oanda Asia Pacific Pte Ltd (“OAP“) accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore customers should contact OAP at 6579 8289 for matters arising from, or in connection with, the information/research distributed.'
Short
by OANDA
EURUSD - The bigger picture this weekHi Team EURUSD is a pair I have been watching for some time now. We have been slowly creeping up towards the descending channel resistance on the daily timeframe (marked on chart). More than any other pair, EU tends to follow channel boundaries closely. Last week saw the FED rake hike 75PTS. What does this mean? It means that we can expect USD strength. This is typically not found immediately following any news release, as market volatility needs to die down. I expect that it will be the middle of this week that we see the beginning of a medium term USD Bull run. The trades we are looking for are as follows: 1.) Scalp BUY of EU up to the sell zone indicated (I will post a more detailed analysis of this shortly) 2.) Initial Scalp SELL of EU to ascending corrective support (marked on chart - detailed analysis coming shortly) 3.) Scalp to swing SELL of EU once ascending corrective support broken We want to capitalise as much as possible on smaller moves before entering a larger one, if we can. NEWS: Monday 0800 GMT - Expecting a rally of EUR from the IFO business climate assessment. This fits in with stage one. Tuesday from 1200 GMT - Multiple moderate impact USD events, primarily the HPI. This is expected to raise, which would be bullsih for USD, and would likely coincide with EURUSD bear run. Wednesday is a HUGE news day. Expect a degree of consolidation after initial drop, with some moderate impact news related to the Euro in the morning. The afternoon (GMT) will show high volatility, especially during and just after the FED interest rate and monetary policy decisions. Thursday sees the annualised GDP Q2 from the US treasury, but this tends to weigh less than the initial release. Positive news would drive EU further down. Summarily: Expect Stage 1 Sun/Mon Stage 2 Tues with consolidation weds am Stage 3 Weds afternoon/Thursday - THIS is the big move Now that I have covered the main expectations and market conditions, I will post subsequent analysis for these specific trades. I hope you like what I do - I put a lot of effort into my analysis, and it shows - last week my ideas would have garnered any readers over 300 pips of profit. Don't forget my FREE channel, and as always please like, comment and subscribe - I want to know your thoughts! Be kind, Trade safe DrBear
by DrBear
2
EUR USD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE In recent weeks, the persistently high inflation has seen the ECB take a more hawkish turn with the bank hiking rates by 50bsp at their July meeting. But the bank quelled any hawkish excitement by explaining they are frontloading hikes and not signalling a higher terminal rate with their bigger hike. At their July meeting the bank also failed to ease spread fragmentation concerns with their new Transmission Protection Instrument (TPI) as the eligibility criteria means countries that will need the support the most might have a tough time qualifying. Combined with Italian political concerns, further spread widening looks likely right now. Right now, even though policy and spreads are important, the main story and driver for the EUR is the economic outlook. Recent growth data continues to surprise to the downside at a rapid pace further stoking recession fears for the Eurozone. As long as data surprises lower and spreads remain high the bias for the EUR remains firmly in bearish territory. POSSIBLE BULLISH SURPRISES Geopolitics remains important where any de-escalation or cease fire in Ukraine would open up a lot of EUR upside. Also keep Italian politics in mind where successful attemptsto avoid a snap election could ease spread widening & support the EUR. Stagflation fears are high, with growth expected to slow with inflation still. Recent PMI data has invigorated recession fears, which means any materially better-than-expected growth data (German Ifo & EU GDP data this week) could spark some relief. Spread fragmentation remains a concern, especially with Italian politics and the ECB’s failed attempt to reassure markets about their new TPI tool. Any comments about TPI that convinces markets it can solve fragmentation issues should be supportive for the EUR. Energy concerns are still in focus, which means watching the Nord Stream 1 flows, if Russia increases gas flows to more regular levels it should ease some energy supply issues. POSSIBLE BEARISH SURPRISES Geopolitics remain in focus, any escalation in the Ukraine war that risks including NATO would be big negative risks. Also keep Italian politics in mind, where any failed attempts to avoid a snap election should add further pressure on the EUR. Growth concerns continue to weigh on the EUR and means any major negative surprises in incoming growth data (German Ifo & EU GDP data this week) could trigger further downside. Spread fragmentation remains in focus, and if the ECB fails to act with big jolts higher in the BTP/ Bund spread it could trigger bearish reactions in the EUR. We've seen a chunky repricing in hike expectations over the past three weeks, and any further lower repricing is expected to weigh on the EUR. Energy concerns are still in focus, which means watching the Nord Stream 1 flows, if Russia decreases gas flows again it should ease some energy supply issues. BIGGER PICTURE The fundamental outlook remains bearish for the EUR with recent leading indicators pointing to a much faster economic slowdown than markets had previously expected. The current bearish drivers (geopolitics, stagflation, spread fragmentation, energy supply concerns) far outweigh the positives from a hawkish ECB. Recession risks open up a narrative change for the EUR which will require markets to change their forecasts to reflect higher recession probabilities which should weigh on the EUR. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE Hawkish Fed policy remains a key driver for Dollar strength. With headline inflation >9%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their June meeting, and continuing with Quantitative Tightening. However, as a result of increasing fears of a growth slowdown (as evidenced by recent econ data), STIR markets have repriced lower, and now expects a terminal rate of 3.5% (versus >4% before the June FOMC meeting). Even though lower STIR pricing should be negative for the USD, the growth concerns has sparked further risk off concerns and have seen safe haven flows into the USD. The USD is usually inversely correlated to the global economy and trade, appreciating when growth & inflation slows and depreciates when growth & inflation accelerates. Further expectations of a cyclical slowdown and continued tight monetary policy expectations has seen investors shun risk assets and even bonds (usually considered a safe haven), and the USD has been a key benefactor of the rush to safety in recent weeks. The current high inflation has meant that bonds have not been sought as a safe haven with a strong stock-to-bond correlation, and this has caused big bond outflows. With bonds not fulfilling its usual save haven role the USD has been the haven of choice. The bias remains bullish , but with stretched tactical and CFTC positioning we don’t want to chase the USD higher right now. POSSIBLE BULLISH SURPRISES As aggressive Fed policy has been supporting the USD, any incoming data that sparks further aggressive hike expectations, or comments from the FOMC that signals even more aggressive policy could trigger bullish reactions. As the cyclical outlook continues to weaken, the USD’s safe haven status matters. Any incoming data that exacerbates fears of recession and triggers a big flush in risk assets and triggers a rush to safety should be positive for the USD. Further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices, rising inflation expectations and upside surprises in inflation data could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES Even though the USD has been trading like a safe haven, the worse growth data continues to get, the higher the likelihood of a ‘Fed Put’ in the months ahead. Thus, extremely bad growth data could trigger short-term bearish reactions in the USD. The USD is trading close to cycle highs while aggregate CFTC positioning is close to prior highs which acted as local tops. Thus, stretched positioning could make the USD vulnerable to short-term mean reversion, but finding strong enough bearish catalysts has been tricky recently. With a lot already priced for the Fed, it won’t take much to disappoint on the dovish side. Any FOMC comments that suggests more concern about the economy than inflation could trigger bearish reactions in the USD, but with inflation so high any major dovish pivots seem unlikely for now. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays aggressive and cyclical concerns put pressure on risk assets. But we want to be mindful that lots has been priced for the USD, and as growth deteriorates, it could start to weigh on the USD if markets start pricing in a ‘Fed Put’, even though current inflation suggests any dovish pivot seems a while away. Also, as the safe haven of choice any further recession focused downside in risk assets could continue to prove supportive for the USD. In the short-term though, with positioning in mind, we prefer much deeper pullbacks for new med-term USD longs and would look for short-term catalysts that offer short-term bearish sentiment-based trades.
by thunderpips
2
EUR USD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE In recent weeks, the persistently high inflation has seen the ECB take a more hawkish turn with the bank hiking rates by 50bsp at their July meeting. But the bank quelled any hawkish excitement by explaining they are frontloading hikes and not signalling a higher terminal rate with their bigger hike. At their July meeting the bank also failed to ease spread fragmentation concerns with their new Transmission Protection Instrument (TPI) as the eligibility criteria means countries that will need the support the most might have a tough time qualifying. Combined with Italian political concerns, further spread widening looks likely right now. Right now, even though policy and spreads are important, the main story and driver for the EUR is the economic outlook. Recent growth data continues to surprise to the downside at a rapid pace further stoking recession fears for the Eurozone. As long as data surprises lower and spreads remain high the bias for the EUR remains firmly in bearish territory. POSSIBLE BULLISH SURPRISES Geopolitics remains important where any de-escalation or cease fire in Ukraine would open up a lot of EUR upside. Also keep Italian politics in mind where successful attemptsto avoid a snap election could ease spread widening & support the EUR. Stagflation fears are high, with growth expected to slow with inflation still. Recent PMI data has invigorated recession fears, which means any materially better-than-expected growth data (German Ifo & EU GDP data this week) could spark some relief. Spread fragmentation remains a concern, especially with Italian politics and the ECB’s failed attempt to reassure markets about their new TPI tool. Any comments about TPI that convinces markets it can solve fragmentation issues should be supportive for the EUR. Energy concerns are still in focus, which means watching the Nord Stream 1 flows, if Russia increases gas flows to more regular levels it should ease some energy supply issues. POSSIBLE BEARISH SURPRISES Geopolitics remain in focus, any escalation in the Ukraine war that risks including NATO would be big negative risks. Also keep Italian politics in mind, where any failed attempts to avoid a snap election should add further pressure on the EUR. Growth concerns continue to weigh on the EUR and means any major negative surprises in incoming growth data (German Ifo & EU GDP data this week) could trigger further downside. Spread fragmentation remains in focus, and if the ECB fails to act with big jolts higher in the BTP/Bund spread it could trigger bearish reactions in the EUR. We've seen a chunky repricing in hike expectations over the past three weeks, and any further lower repricing is expected to weigh on the EUR. Energy concerns are still in focus, which means watching the Nord Stream 1 flows, if Russia decreases gas flows again it should ease some energy supply issues. BIGGER PICTURE The fundamental outlook remains bearish for the EUR with recent leading indicators pointing to a much faster economic slowdown than markets had previously expected. The current bearish drivers (geopolitics, stagflation, spread fragmentation, energy supply concerns) far outweigh the positives from a hawkish ECB. Recession risks open up a narrative change for the EUR which will require markets to change their forecasts to reflect higher recession probabilities which should weigh on the EUR. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE Hawkish Fed policy remains a key driver for Dollar strength. With headline inflation >9%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their June meeting, and continuing with Quantitative Tightening. However, as a result of increasing fears of a growth slowdown (as evidenced by recent econ data), STIR markets have repriced lower, and now expects a terminal rate of 3.5% (versus >4% before the June FOMC meeting). Even though lower STIR pricing should be negative for the USD, the growth concerns has sparked further risk off concerns and have seen safe haven flows into the USD. The USD is usually inversely correlated to the global economy and trade, appreciating when growth & inflation slows and depreciates when growth & inflation accelerates. Further expectations of a cyclical slowdown and continued tight monetary policy expectations has seen investors shun risk assets and even bonds (usually considered a safe haven), and the USD has been a key benefactor of the rush to safety in recent weeks. The current high inflation has meant that bonds have not been sought as a safe haven with a strong stock-to-bond correlation, and this has caused big bond outflows. With bonds not fulfilling its usual save haven role the USD has been the haven of choice. The bias remains bullish, but with stretched tactical and CFTC positioning we don’t want to chase the USD higher right now. POSSIBLE BULLISH SURPRISES As aggressive Fed policy has been supporting the USD, any incoming data that sparks further aggressive hike expectations, or comments from the FOMC that signals even more aggressive policy could trigger bullish reactions. As the cyclical outlook continues to weaken, the USD’s safe haven status matters. Any incoming data that exacerbates fears of recession and triggers a big flush in risk assets and triggers a rush to safety should be positive for the USD. Further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices, rising inflation expectations and upside surprises in inflation data could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES Even though the USD has been trading like a safe haven, the worse growth data continues to get, the higher the likelihood of a ‘Fed Put’ in the months ahead. Thus, extremely bad growth data could trigger short-term bearish reactions in the USD. The USD is trading close to cycle highs while aggregate CFTC positioning is close to prior highs which acted as local tops. Thus, stretched positioning could make the USD vulnerable to short-term mean reversion, but finding strong enough bearish catalysts has been tricky recently. With a lot already priced for the Fed, it won’t take much to disappoint on the dovish side. Any FOMC comments that suggests more concern about the economy than inflation could trigger bearish reactions in the USD, but with inflation so high any major dovish pivots seem unlikely for now. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays aggressive and cyclical concerns put pressure on risk assets. But we want to be mindful that lots has been priced for the USD, and as growth deteriorates, it could start to weigh on the USD if markets start pricing in a ‘Fed Put’, even though current inflation suggests any dovish pivot seems a while away. Also, as the safe haven of choice any further recession focused downside in risk assets could continue to prove supportive for the USD. In the short-term though, with positioning in mind, we prefer much deeper pullbacks for new med-term USD longs and would look for short-term catalysts that offer short-term bearish sentiment-based trades.
by thunderpips
1
Anticipating a move higher on EURUSDEURUSD - Intraday - We look to Buy at 1.0116 (stop at 1.0058) Although the bears are in control, the stalling negative momentum indicates a turnaround is possible. A weaker opening is expected to challenge bullish resolve. Support is located at 1.0100 and should stem dips to this area. We therefore, prefer to fade into the dip with a tight stop in anticipation of a move back higher. Our profit targets will be 1.0250 and 1.0300 Resistance: 1.0260 / 1.0600 / 1.1200 Support: 1.0100 / 0.9950 / 0.9800 Risk Disclaimer The trade ideas beyond this page are for informational purposes only and do not constitute investment advice or a solicitation to trade. This information is provided by Signal Centre, a third-party unaffiliated with OANDA, and is intended for general circulation only. OANDA does not guarantee the accuracy of this information and assumes no responsibilities for the information provided by the third party. The information does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. You accept that you assume all risks in independently viewing the contents and selecting a chosen strategy. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, Oanda Asia Pacific Pte Ltd (“OAP“) accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore customers should contact OAP at 6579 8289 for matters arising from, or in connection with, the information/research distributed.'
Long
by OANDA
EUR USD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL OUTLOOK: WEAK BEARISH BASELINE In recent weeks, the persistently high inflation has seen the ECB take a more hawkish turn with the bank confirming at least a 25bsp hike for July and possibility of a 50bsp hike in September. Despite the hawkish policy shift, the concerns over fragmentation in bond spreads (BTP\Bund) as well as fears of growing stagflation risks has seen the EUR struggle to hold onto any hawkish ECB momentum. The ECB did try to comfort spread concerns with promises of a new fragmentation tool, and even though it has kept spreads from widening further, concerns remain. If the bank can convince markets that their new spread tool(s) can stop fragmentation it should be supportive for the EUR. However, with a material energy crisis facing the EZ due to the war in Ukraine, the economic prospects look bleak. Even though growth data was surprisingly resilient in Q2, fresh recession fears ramped up as recent forward-looking growth data surprised materially lower for key members like Germany and France. Based on the forward-looking signals from leading indicators we think recession is likely in the EZ and that the narrative has turned more bearish for the EUR until that improves. POSSIBLE BULLISH SURPRISES Geopolitics remains a focus, and any possible de-escalation or cease fire in Ukraine would open up a lot of EUR upside. Also keep Italian politics in mind where any successful attempt by PM Draghi to stay in power should ease spread concerns. Stagflation fears are high, with growth expected to slow while inflation stays high. Recent PMI data has invigorated recession fears, which means any materially better-than-expected growth data (Flash PMIs this week) could spark upside. Even though the ECB’s recent communication has been enough to push BTP/ Bund spreads from their recent highs the concerns remain, especially with Italian politics further exacerbating the problem. Thus, any insights or clarity regarding their new tool that convinces markets it can solve fragmentation should be supportive for the EUR. Energy concerns are still in focus, which means watching the Nord Stream 1 pipeline closely, if Russia resumes gas flows after maintenance ends this week it could see EUR upside. POSSIBLE BEARISH SURPRISES Geopolitics remain in focus, any escalation in the Ukraine war that risks including NATO would be big negative risks. Also keep Italian politics in mind, where any triggers of general elections risk further spread concerns & pressure the EUR. Spread fragmentation remains in focus, and if the ECB fail to calm fears or even walks back on recent hawkish comments it could trigger bearish reactions in the EUR. Growth concerns continue weighing on the EUR and means incoming growth data (Flash PMIs this week) will be in focus, where any major negative surprises could trigger downside. We've seen a chunky repricing in hike expectations over the past three weeks, and any further lower repricing is expected to weigh on the EUR. Energy concerns are still in focus, which means watching the Nord Stream 1 pipeline closely, if Russia keeps gas flows closed after maintenance ends this week it could see EUR downside. BIGGER PICTURE The fundamental outlook for the EUR has shifted to bearish with recent leading indicators pointing to a much faster economic slowdown than markets had previously expected. There are bearish and bullish factors in play right now though. On the bearish side we have geopolitics, stagflation, spread fragmentation and energy concerns acting as negative drivers. But we also have hawkish ECB policy as a possible supportive driver. Recession risks does open up a narrative change for the EUR which will require markets to change their forecasts to reflect higher recession risks which should continue to weigh on the EUR. USD FUNDAMENTAL OUTLOOK: BULLISH BASELINE Hawkish Fed policy remains a key driver for Dollar strength. With headline inflation >9%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their June meeting, and continuing with Quantitative Tightening. However, as a result of increasing fears of a growth slowdown (as evidenced by recent econ data), STIR markets have repriced lower, and now expects a terminal rate of 3.5% (versus >4% before the June FOMC meeting). Even though lower STIR pricing should be negative for the USD, the growth concerns has sparked further risk off concerns and have seen safe haven flows into the USD. The USD is usually inversely correlated to the global economy and trade, appreciating when growth & inflation slows and depreciates when growth & inflation accelerates. Further expectations of a cyclical slowdown and continued tight monetary policy expectations has seen investors shun risk assets and even bonds (usually considered a safe haven), and the USD has been a key benefactor of the rush to safety in recent weeks. The current high inflation has meant that bonds have not been sought as a safe haven with a strong stock-to-bond correlation, and this has caused big bond outflows. With bonds not fulfilling its usual save haven role the USD has been the haven of choice. The bias remains bullish , but with stretched tactical and CFTC positioning we don’t want to chase the USD higher right now. POSSIBLE BULLISH SURPRISES As aggressive Fed policy has been supporting the USD, any incoming data ( S&P Flash PMI this week) that sparks further aggressive hike expectations, or comments from FOMC members that signals even more aggressive policy could trigger bullish reactions in the USD. As the cyclical outlook for the global economy is very bleak, and the USD is considered a safe haven, it means incoming data that exacerbates fears of recession and triggers a big rush to safety could trigger bullish USD reactions. Further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices, rising inflation expectations and upside surprises in inflation data could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES The USD has been reacting as a safe haven with recent US data, but the worse growth data gets, the higher likelihood of a ‘Fed Put’ in the months ahead. Thus, extremely bad growth data could trigger bearish reactions in the USD. Tactically the USD is trading at fresh cycle highs, and aggregate CFTC positioning is close to prior highs which acted as local tops. Thus, stretched positioning could make the USD vulnerable to mean reversion in the short-term, but finding strong enough bearish catalysts has been tricky recently. With a lot already priced for the Fed, it won’t take much for them to disappoint markets on the dovish side. Any FOMC comments that suggests more concern about the economy than inflation could trigger bearish reactions in the USD, but with inflation so high any dovish pivots seem unlikely for now. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays aggressive and cyclical concerns put pressure on risk assets. We do also want to be mindful that lots has been priced for the USD, and as growth deteriorates, it could start to weigh on the USD if markets start pricing in a ‘Fed Put’, but based on where inflation is sitting any pivot seems still a while away and as the safe haven of choice any further recession focused downside in risk assets will likely continue to prove supportive for the USD. In the short-term though, with positioning looking stretched, we prefer much deeper pullbacks for new med-term USD longs and would look for short-term catalysts that offer shorter bearish sentiment trades against the current strong bull trend.
by thunderpips
13