“Success is how high you bounce once you hit bottom.”
-George Patton
Like tops, bottoms are processes, not points. That’s why we measure and map price, volume, and volatility daily, weekly, and deliberately. Mathematically speaking, bottoming processes are formed by a series of higher-lows.
That’s why the “breakout in the US Dollar” that Old Wall technicians have been talking about for the last few trading days (it got above their 50-day Moving Monkey) wasn’t something we didn’t proactively prepare you for.
Our US Dollar #Bottoming call was made at the start of April (see Q2 Macro Themes deck for details). When the probability of something Wall Street considers improbable is rising, that’s when we step up to the plate.
Back to the Global Macro Grind…
Not ironically, the #1 reason to make a US Dollar #Bottoming call is something big that happens in conjunction with that. We’ve called it #GlobalDivergences. Q4 of 2017 was the last quarter when Global Growth momentum was broadly positive…
Since Q4’s peak in both the narrative of a “Globally Synchronized Recovery” and the historical data that gave birth to it, anyone who measures and maps rate of change data can see both the Chinese and European cycle slow-downs.
As you can see in today’s Chart of The Day (our US Dollar vs. GIP Model back-test) it’s consistent with economic and market history that when the entire world is in #GrowthAccelerating mode (Quad 1 or 2), the US Dollar’s expected value falls.
It’s also readily apparent to anyone who looks at the world the way we do (trending rates of change in Growth & Inflation) that:
A) The expected value of the US Dollar starts to rise when the Global Economy transitions to Quad 3 from Quad 1 and 2
B) The expected value of the US Dollar starts to breakout when the Global Economy is in Quad 4
Put simply, from an intermediate-term @Hedgeye TREND perspective, both the absolute and relative GROWTH rates of the USA vs. the Global Economy are big time causal factors.
Yes, especially when combined with MONETARY TIGHTENING (i.e. what the Fed is doing right now) and FISCAL EXPANSION, if US growth diverges from the rest of the world, the US Dollar doesn’t just bottom, it can rip higher (see 1980s and 1990s for details).
Huh? But my mainstream political pundit says “twin deficits and Trump” are bad for the Dollar. Uh, not really. There’s this thing called the rest of the world (that is also running deficits) and a big place called socialist/communist China that matter too.
Happy to have this debate with anyone who is currently short the US Dollar vs. Euros. Since the net LONG position in EUR/USD is right at the all-time highs, I expect to get a lot of feedback on this!
Long Euros, Yens, Pounds, etc. vs. USD is as consensus as buying European Equities was 6-9 months ago and/or that we were in a “globally synchronized recovery” 4-5 months ago (those 3 words have now been downgraded to lower-case!).
Since I’ll be debating the Dollar on the road with clients in California all week, here were my Top 3 Things to consider this morning relative to this Dollar Up, Rates Up situation we find ourselves with in the USA:
- US DOLLAR – bottoming or bottomed? Lots to do on our latest contrarian Q2 Macro Theme that Wall Street consensus is not positioned for after USD Index had a multi-standard deviation move in the last 2 trading days that is supported by our Quad 2 (growth and inflation accelerating at the same time) US economic view vs. #GlobalDivergences
- JAPAN –Dollar Up, Yen Down = Nikkei Up +0.9% overnight and breaking out above @Hedgeye TREND resistance for the 1st time in 2018 (as the Yen breaks @Hedgeye TREND support) – this is A) new, B) needs to prove itself with more time, and C) diverging from EM Asia Equity returns (Indonesia -1.2% overnight, Malaysia -0.8%) which do not like #StrongDollar
- 10YR – UST yield (and German and Japanese) pulls back from the top-end of the @Hedgeye Risk Range yesterday, but I wouldn’t consider that a new TREND – to remain crystal clear on this, the @Hedgeye TREND in both UST 2 and 10yr Yield remains as Bullish as the pending headline inflation reports should be hawkish
If you’d like to get my Top 3 Things moving in macro every morning, ping . I publish that around 530-600AM EST every day. There’s a premium charge for it. But that’s the front-end of my #process where I’m measuring and mapping.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.75-3.01% (bullish)
SPX 2 (neutral)
NASDAQ 7004-7323 (neutral)
Nikkei 210 (bullish)
VIX 14.12-20.92 (bullish)
USD 89.50-90.99 (bullish)
EUR/USD 1.21-1.23 (bearish)
YEN 107.03-108.99 (bearish)
GBP/USD 1.39-1.42 (bullish)
Oil (WTI) 65.45-69.40 (bullish)
Copper 3.01-3.19 (bearish)
AMZN 1 (bullish)
GOOGL 1013-1105 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
