So on Sunday, I gave you a three-word explanation for dollar doldrums:
Too much treason.
That’s about as straightforward and accurate an assessment as you’re going to get and I strongly encourage you to read the full post as it outlines the rationale behind positioning in the greenback which, you’re reminded, is now the most bearish since 2013.
Of course that positioning represents the ostensibly “smart” money and that would be the same “smart” money that thought “long USD” was a “no-brainer” going into 2017, so who knows. Maybe its a contrarian indicator and a turning point is imminent.
But if a turning point is imminent, it didn’t happen overnight, because USDJPY just hit a 5-week low.
“Dollar slumps to a five-week low against the yen on concern a widening probe into possible ties between Russia and U.S. President Donald Trump’s election campaign may derail his growth agenda,” Bloomberg wrote overnight, adding that “lower U.S. Treasury yields and oil prices spurred leveraged selling in the greenback ahead of Jared Kushner’s closed-door meeting with the Senate Intelligence Committee on Monday.”
Look at Treasury yields since Sintra:
“The chances of Trump getting any of his campaign promises through in the foreseeable future are almost nil, so the Trump trade is dead for this year, and likely next” said Andrew Bresler, Singapore-based deputy head of sales trading for Asia Pacific at Saxo Capital Markets.
“The only thing that can change the fortunes of the dollar in the months ahead is an improvement in U.S. hard data. This will give the Fed confidence to proceed with their rate path,” he adds.
That harkens right back to what I said on Sunday. Namely this:
The other thing you have to understand is that paralysis in Washington is casting serious doubt on the extent to which fiscal policy is prepared to take the baton from monetary policy and that, in turn, is weighing heavily on yields. This undercuts the rate differentials pillar for the greenback as it’s no longer clear that the policy divergence theme (Fed versus ECB/BoJ) will play out like everyone thought it would play out.
See now, you’re going to need to see the hard data turn up in order to make sure the policy divergence theme stays on track. Because the way it’s looking right now, the Fed can’t get too aggressive for the simple reason that fiscal policy is frozen in time thanks to the Trump-Russia probe.
Meanwhile, the broad dollar is at a 14-month low.
So I say again: too much treason.