Can’t believe that was fiddy years past. Going to see the new Apollo 11 flick on Saturday with my 15-year old daughter, who wants to be an astrophysicist.
Back to biz…
The Dixie – “To the Moon, Alice”
Another launch today, the Dixie (dollar index) as Puff The Magic Draghi, Who Lives At The ECB, began the countdown launch at this morning’s European Central Bank press conference,
First, we decided to keep the key ECB interest rates unchanged…expect them to remain at their present levels at least through the end of 2019, and…for as long as necessary…
Second, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme…
Third, we decided to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III), starting in September 2019 and ending in March 2021…
Fourth, we will continue conducting our lending operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021. – Mario Draghi, March 7th
The euro (57.6 percent of the dollar index) was spanked hard after the ECB presser, now trading at its lowest level since the summer of 2017. It’s not just the euro getting schmoked against the dollar, however, but all the majors are down x/ the Japanese yen, the ultimate haven currency, partly due to the country’s massively positive net international investment position (NIIP).
Ironically, the U.S. has the worst NIIP in the world in absolute terms, and the dollar will someday have to pay the piper. But not yet, bro, Godot has yet to show.
Measured Move Targets
In our February 11 post, Dollar On The Launchpad, which is now an “ex-post must read” we calculated the target levels after a breakout. The cash Dixie does need to clear the December 97.71 intraday high — now less than a gimme away — and have zero doubt it will. The Dixie did close at its highest level since May 2017.
Here are our conclusions and chart from the February 11 post,
The dollar goes higher. Breaks through 97.711 high (only 0.6 percent from current levels) with a measured move to 101.722, or a move of 4.8 percent. The emerging market trade is over. Taking profits and moving on. – GMM, Feb 11th
POTUS’ Coming Twitterstorm
As the dollar breaks out, we expect POTUS to begin another twitter rant trying to manipulate Mr. Market. You know, the Market Socialism, we strongly oppose here at GMM and will ultimately result in disaster if continued, IMHO. Do you have any doubts it will?
Here is what POTUS said this past Saturday at the CPAC,
“We have a gentleman that likes raising interest rates in the Fed. We have a gentleman that loves quantitative tightening in the Fed. We have a gentleman that likes a very strong dollar in the Fed. … We want a strong dollar, but let’s be reasonable, you understand. With all of that, we’re doing great. Can you imagine if we left interest rates where they were? There’s no inflation, essentially.” – Politico
Let’s be reasonable! That makes tomorrow’s Nonfarm Payrolls yuuuuge. A strong print and the dollar gets vertical.
Trump will most likely take the markets’ flipping him the bird (which they do to all of us) personally (which I used to do), in our opinion.
So, expect POTUS to soon start stumping for a rate cut from his newest whipping boy, Chairman Powell, to weaken the dollar, and start beating up on the Germans bigly (probably via Larry Kudlow) to implement a big, big fiscal expansion package in Deutschland. Our bet is that a tweet or presser is coming sooner than later, assuming they get it. Recall Kudlow is a B.A. in history with no formal degree in economics. Nice guy, though.
By the way, we suspect much of the German –> Euroland weakness is related to the trade wars.
P.S. Surprised gold not getting spanked harder but it was signaling the coming dollar strength with its smackdown from the recent cash high at $1346ish on February 20th.
Keep it tight, folks. Tail risk increasing that the global economy and politics are sailing into a perfect storm. Emphasis on tail risk — low probability, high impact event. Of course, we are not saying it is a done deal, but the risk is not even remotely priced.
Pingback: Week In Review – March 15 | Global Macro Monitor