U.S. Dollar, a Key Technical Break

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Updated May 20, 2017 at 6am

We’ll have a note out later today, but this is a BIG story.  The U.S. dollar has broken its five year trend line.  Across Wall St., lofty 2017 dollar estimates are coming down fast.

“In light of the high degree of uncertainty around the outcome of the (Comey – Trump – Russia) investigation—and the likelihood that it will consume policymakers’ time and energy for some months—the prospects for progress on the Administration’s economic agenda, at least over the near-term, look quite dim. We recently revised down our forecasts for the trade-weighted US dollar, but the latest developments in Washington have introduced additional downside risks. A longer-than-expected period of political uncertainty would likely reduce the likelihood of fiscal stimulus and other dollar-positive aspects of the Trump agenda, with possible implications for Fed policy as well. Until the fog clears, we expect that the dollar will struggle to find its footing.”

Goldman Sachs, May 17, 2017

Impact of the Fed?

Wall St’s calling for 2-3 more rate hikes this year, seven over the next two years – but Mr. DXY says no way Jose.  The ultimate barometer for the Trump trade (tax cuts, infrastructure and deregulation) is signaling a major warning.

Our Dollar Call from May 3rd

Dollar New 3This image was produced on May 3rd and included in our Bear Traps Report, 95 target highlighted above with the DXY at 99.08 then.

U.S. Dollar, a Key Technical Break

DXY TrendThe dollar closed at 97.14, breaking a key technical level this week.

Four Significant Catalysts

  1. Trump’s agenda in Washington is at Risk – So Are the Fed’s Beloved Rate Hikes.

    This is a BIG Technical Break in the U.S. Dollar, political risk in the USA is surpassing that of Europe

    Is this Drama in Washington Impacting the Legislative Time Line?  The simple answer is yes.  Every minute that legislative and executive branches of the US government are focused on Comey-Russia is a minute wherein the tax bill, infrastructure, trade negotiations – homeland investment act or change to Medicare is not being debated, scored and advanced. Investors bought the dollar because Trump’s policies were going to be good for the greenback; without Washington’s legislative goodie bag (tax cuts – fiscal stimulus) we’re just looking at high drama on the world’s most important stage.

    2. Equity valuations in Europe (Euro is surging, highest since November) are playing catch up with the U.S., as the President’s growth agenda still sits in stall mode – investors globally are reaching for alpha in Europe.

Stocks in 2017

S&P 500: +7.9%
Euro STOXX 50: +11.1%
MSCI Europe: +16.8%

3. Credit risk on the consumer side is surging in North America at the fastest pace since the financial crisis; commercial real estate / REITS, auto loans, credit cards, student loans are all experiencing a significant rise in delinquencies and late payments – as a result, banks and financial institutions are pulling back lending.  The U.S. dollar is responding to economic risks and moving lower.  Likewise, an extremely low core CPI print relative to very high expectations is pushing down bond yields in the USA.  We still see 2% before 3% in 2017 on U.S. 10s, our long held position.

4. Jack Welch was Right?

U.S. Stats Officials Say Measurements of GDP, Inflation Are Off

Looking at the personal consumption component of GDP, the authors find that price measures likely show an overstatement of 0.2 percentage point in 2000, rising to 0.26 percentage point in 2015.

Combined with some bogus measurement of quality changes in computer and software investment, the total effects would mean GDP growth is understated by a bout 0.4 percentage point for 2000, 2005, 2010 and 2015, according to the new paper.

What’s Our List of Systemic Risk Indicators Saying now?  Pick up our latest note here:

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