Our team of macro analysts spends the majority of its time measuring and mapping the economic cycle. That’s what we do here. We have created and use our own quantitative models which signal to us when certain assets are overbought and oversold. All of this combines to inform our high conviction list of investable ideas.
So, what’s our process saying now about the dollar?
Buy it.
“Buy the damn dip. That’s what you’ve got to do,” says Hedgeye CEO Keith McCullough. “Why? Because there’s economic data to support it.” Take a look:
- Americans Are Feeling Good. Call it the ‘Trump Effect,’ or whatever you want … but Consumer Confidence just notched a year-to-date high of 107.1 in November. That’s a big increase from October when it was only 98.6.
- ISM Services for the month of November hit a 14-month high accelerating +2.4 points to 57.2. Within the release, Business Activity ramped to 61.7 and Employment popped to 58.2. Anything over 50 is expansionary.
Furthermore, our quantitative model also suggests the U.S. dollar is oversold. Here’s McCullough’s analysis from the video above:
“What we care about is the quantitative research overlay which is signaling immediate term trade oversold on the US dollar within a bullish intermediate term trend. So then you’re going to a get a Fed rate hike in the coming week. There’s a 110% chance of that. And now you have economic data accelerating on both US Consumer Confidence and ISM Services, two big consumption bogeys. With 70% of GDP being consumption, that ISM Services number really, really matters... You can fight the data all you want but I’m not in the business of not being data dependent.”
When the quantitative signal and the research are confirmed by hard data, what to do next in the U.S. dollar is pretty easy.
Borrowing from the Wall Street vernacular:
