Macro Digest: Will the US Dollar finally go stronger?

We have a significant potential change in the direction of the US dollar in our tactical models. Today the timing model is selling EUR for the first time since December 2012.

Trade: Sell 1.3730 with stop @ 1,3810 or 1,3910 (depending on risk tolerance)

The risk reward is excellent as a stop one day close can be place either at 1.3810 or 1.3910 depending on the risk tolerance.

We also have similar direction change in DXY - the US dollar index. It yesterday went long and against a long term support line. (See link with the US Index chart here)

Trade: Buy April DXY Future (see chart)

Finally, 

Our Gold and Silver model is also sending out warning signal - both of them also offer excellent short against the recent highs.

Trade: Sell Silver @ 21.80 with stop @ 22.20 in Saxo Trader April CFD

I still see higher fixed income taking a pause after an impressive rally which have seen ETF inflow which will beat all records back to 2002. The market started on a tear with high expectations for growth now slowly pundits are revising down their forecasts and the bond market have already adjusted their levels through a nice rally in bond (lower yields)

But when we look into the ECB meeting I doubt we will have any reaction before March, but then it will be about an ECB lagging behind on both inflation and growth.

The dramatic underperformance of US and China will have an impact on export driven Europe. Yes, there has been quite nice positive changes to both the mood and trading of Club Med but the price has been "old Europe" have lost serious momentum (Read: France)

The ECB and Draghi have a tendency to do press conferences which is either 'All is normal' or "we are concerned" - I think this one will be ... Everything is normal, but we are ready to act. They simply need better stats/data and things have worsen slightly since last meeting but not enough, so.......

But rest assure that relatively speaking ECB is running a much tighter monetary policy than BOE and FED.

 

 

 

This new approach is a must read link - observe how ECB rates - Shadow Rates - are rising while US is falling and BOE's only just reverse up. In other words: ECB is about to cut rates.  Shadow Rates - Fan Dora Xia - UC San Diego Economics

Stimulus will wait - Rates could react with disappointment and between now and March the US data will improve due to milder weather and an mean-reverting process where market is now too negative on next few months.

Overall this leaves us with some tactical right now - I do realize all three trades above are similar in direction and risk, and I only suggest to do one, but for now my timing models are saying:

1. US Dollar is about to have a come-back
2. Silver/Gold needs correction
3. Fixed Income has fully priced the weaker start to the year

I also think that inside the next few days that EQUITY finally will pay the price for the poor start to the year - The US consumer is not holding up well and export in the US continues to roll over.

Safe Travels,

Steen

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

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