News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • What is your forex trading style? Take the quiz and find out: https://t.co/YY3ePTpzSI https://t.co/U40lgEA8K7
  • New Zealand Dollar Vulnerable as NZD/USD Eyes Falling Wedge - #NZDUSD chart https://t.co/9AGaZsMFmF
  • (Gold Briefing) Gold Price Outlook Turns to UofM Sentiment as US Dollar, Treasury Yields Rally #Gold #XAUUSD #USD #Bonds https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/commodities/2021/09/17/Gold-Price-Outlook-Turns-to-UofM-Sentiment-as-US-Dollar-Treasury-Yields-Rally.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/p7VdFesUb1
  • Consolidation or bull flag? A bull flag is a continuation pattern that occurs as a brief pause in the trend following a strong price move higher. Learn how to better spot these formations here: https://t.co/yOEvLjKnct https://t.co/XPtqedJjyk
  • Crude and Brent oil are on track to extend higher as Gulf Coast supply disruptions and a positive OPEC report bolster sentiment. Uranium is on a massive surge, aided by the famous Wall Street Bets group. Get your market update from @FxWestwater here:https://t.co/XrpV0jcy8e https://t.co/m6XH4n43UQ
  • The Australian Dollar has retraced from August lows when looking at AUD/JPY and AUD/CAD. However, the AUD/NZD downtrend is intact, will a reversal there appear as well? Find out: https://t.co/8LmgqLLGJO https://t.co/yy64N01p2b
  • PBOC injects net 90 billion Yuan in open market operations - Yuan reference rate set at 6.4526 per USD - BBG
  • Australia to trial home quarantine for arrivals who are vaccinated - BBG
  • The S&P 500, Dow Jones and DAX 30 could be at risk of falling as retail traders continue increasing their upside exposure in these indices. What are the key technical levels to watch for? Find out from @ddubrovskyFX here:https://t.co/OJByiwIppr https://t.co/moWS7rqAQG
  • RT @FxWestwater: New Zealand Dollar Outlook: $NZDUSD Drops on US Dollar Bids, Wall Street Losses Link: https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2021/09/16/New-Zealand-Dollar-Outlook-NZDUSD-Drops-on-US-Dollar-Bids-Wall-Street-Losses.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Westwater&utm_campaign=twr https://t.c…
Is the US Dollar’s Death Greatly Exaggerated? – The Macro Setup

Is the US Dollar’s Death Greatly Exaggerated? – The Macro Setup

Christopher Vecchio, CFA, Senior Strategist
Advertisement

THE MACRO SETUP OVERVIEW:

  • Low growth and high inflation sounds a lot like stagflation
  • US equities may be at risk of US Treasury yields continue to climb
  • The US Dollar may have sold off too far too fast given stability in Fed hike odds

Not a Hot Vax Summer After All

In this week’s edition of The Macro Setup, featuring Dan Nathan and Guy Adami, we discussed what the recent streak of disappointing US economic data and continued surge in delta variant COVID-19 infections mean for the US Dollar, US stocks, gold, oil, and bitcoin.

Following the disappointing August US nonfarm payrolls report, US Treasury yields have been moving…higher? While that may be confounding for some, perhaps a different perspective is warranted. Weaker US jobs data against the backdrop of rising COVID-19 infections possibly means that the Federal Reserve is less likely to taper in the near-term. More stimulus means higher growth and inflation premiums discounted into the long-end of the yield curve.

Higher US Treasury yields during QE – and lower US yields when QE is tapered – is not a surprise, as evidenced by the US Treasury 10-year yield chart shared in the video above. But the bigger picture is that higher US Treasury yields, coupled with stability in Fed rate hike odds (“tapering isn’t tightening”), and potential weakness in US equity markets has created a blend that could prove favorable for the recently beleaguered US Dollar.

What can the Fed do, though, if a growth scare makes its way through markets on the precipice of stimulus withdrawal? The toxic combination of low growth, high inflation, and disappointing labor market data sounds eerily like ‘stagflation,’ which is a policy conundrum that the Fed may not be able to address, having “no more arrows left in its quiver,” as Guy Adami noted.

This may mean that some weakness in commodities could be coming into play shortly, particularly for crude oil (growth-sensitive) and gold prices (yield-sensitive). EUR/USD could be due for a drop back below 1.1800, while USD/JPY rates could grind higher towards 111.00; however, breakouts from recent ranges aren’t expected as market participants digest the confounding mix of data and news headlines post-US Labor Day.

*For commentary from Dan Nathan, Guy Adami, and myself on the US Dollar (via the DXY Index), the US S&P 500, gold prices, among others, please watch the video embedded at the top of this article.

CHARTS OF THE WEEK

Eurodollar Futures Contract Spread (September 2021-DECEMBER 2023) [BLUE], US 2s5s10s Butterfly [ORANGE], DXY Index [WHITE]: Daily Rate Chart (January 2021 to August 2021) (Chart 1)

Is the US Dollar’s Death Greatly Exaggerated? – The Macro Setup

GOLD PRICE TECHNICAL ANALYSIS: DAILY CHART (JULY 2020 TO SEPTEMBER 2021) (CHART 2)

Is the US Dollar’s Death Greatly Exaggerated? – The Macro Setup

EUR/USD PRICE TECHNICAL ANALYSIS: DAILY CHART (MARCH 2020 TO SEPTEMBER 2021) (CHART 3)

Is the US Dollar’s Death Greatly Exaggerated? – The Macro Setup

--- Written by Christopher Vecchio, CFA, Senior Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES