In Focus – Mirror, Mirror: Who Is Ugliest

Published on: April 14th, 2023

Markets remain fearful, policymakers adrift. Flows favour Fixed Income, but Equities are resilient. USD may soon come into play. The case and environment required for a substantial fall in USD is set out in detail below.

Comments

  • TK
    Tahsin K.
    15 April 2023 @ 01:40
    1 0
    Is there a simpler way to express the EUR/USD thesis with an ETF? Perhaps the WisdomTree ticker LEUR? How would those ratios translate to levels for LEUR if that serves as a viable alternative?
    • LL
      Ludovico L.
      19 April 2023 @ 15:55
      0 0
      I think that particular ETF is actually quoted in $...
  • PW
    Pete W.
    15 April 2023 @ 09:15
    1 0
    Would Julian’s weaker USD call be threatened if US rates stayed higher for longer, as per Jamie D?
    • HM
      Harry M. | Real Vision
      19 April 2023 @ 13:28
      0 0
      Yes it would be threatened by that. Effectively a more robust US economy which stands up better than expected to higher rates
  • MG
    Miguel G.
    16 April 2023 @ 14:44
    3 0
    Julian I understand the bear case for the $ as equities underperform foreign players will take their money and swap them for their domestic fx, but what are dollar implications if we enter a global recession? Hasnt it been the playbook that money flows in to $ and our govt debt? So if the macro pic is right I guess I dont understand why the dollar would break as we enter a sort of global recession? It seems like the dollar break down that were waiting for would come after the recession runs its course? Thoughts please.
    • MG
      Miguel G.
      19 April 2023 @ 17:51
      0 0
      Thanks Harry
    • HM
      Harry M. | Real Vision
      19 April 2023 @ 13:30
      1 0
      JB thinks that the credit effect of a dollar funding squeeze will be relatively brief. Partly cos the Fed is doing its best to prevent or mitigate the wider effects of a dollar funding squeeze, and partly cos there is building pressure to repatriate capital all around the world. You will get some kind of dollar funding squeeze, but it just wont lead to a durable bid to the dollar.
  • MG
    Miguel G.
    16 April 2023 @ 15:16
    1 0
    Julian what are you thoughts on Powell's ability to hold the line on this inflation fight? After reading your awesome write up it sounds like you dont think they can hang in there much longer but if leads on inflation are correct the fed would be lucky to get inflation to 3.5-3.9% by year end with most of that cooling in inflation happening in 1H of this year. Im trying to understand what the cover will be that can get the fed to pivot and start the dollar bear market? How do you handicap the amount of macro, equity and employment pain needed to get entries in these bigger dollar ideas. At spx 4100 just seems like were still a good bit away from seeing a fed eventually go from a pause after May to all out cuts.
    • HM
      Harry M. | Real Vision
      19 April 2023 @ 13:34
      1 0
      The idea is that we should take a wholistic view of these pressures. The Fed is more hawkish and as far as JB and I can tell (from speaking to our Fed watching friends) the Fed is hawkishly inclined. I suppose the easiest way to explain it is that Fed officials are deeply embarrassed by the inflation surge, So if given a choice between making a mistake which allows inflation to continue, and overtightening and causing a somewhat deeper recession, they would prefer the latter mistake. The burden of proof is on inflation to come down. That said, if the interest rate sensitive component of the economy collapse, they Fed will change its mind. Looks a lot like those sectors are primed to collapse now. Sadly we will have to wait till it has obviously materialized before the Fed chooses to relax the pressure and lower rates.
  • JM
    John M.
    17 April 2023 @ 01:17
    0 0
    Would be very interested to learn more about how Julian and team set stops!
    • JM
      John M.
      24 April 2023 @ 19:25
      0 0
      Got it, I have noticed Julian tends to have a pretty high win rate on trades, definitely appreciated! Mostly I have been scaling these trades vs the stop level with seems to be roughly in line with the vol, but I may also start scaling with the upside in the case trades are better than 3:1, unless there is some argument against this?
    • HM
      Harry M. | Real Vision
      19 April 2023 @ 13:36
      1 0
      Basically its a combination of risk reward and technical analysis. If you put a trade on you must have a risk reward of at least 3:1 otherwise why is it going on? And the precise location of the stop is usually based on a specific technical analysis of the market. I.e., we look at the chart and try and figure out where the support./resistance is.
  • JM
    John M.
    17 April 2023 @ 17:27
    2 0
    Also, any thoughts on putting the SOFR spread back on given where it has retraced?
    • JM
      John M.
      24 April 2023 @ 19:21
      1 0
      Thanks for following up!
    • HM
      Harry M. | Real Vision
      19 April 2023 @ 14:19
      1 0
      A great question. We have been debating it and discussing something like scaling in at -130 and -140 level. It's much more volatile than it was, so we would suggest doing less than 50% of our original size because it is clearly something which can really move. Same arguments works. The trade will work slowly on a higher for longer outcome, but also (as we have just seen) on a Fed capitulation situation. So yes, we are definitely thinking about putting it on again. When we have more confidence in the entry point, we will put out a flash update, but yes, we can definitely see a rationale to start scaling in here.
    • HM
      Harry M. | Real Vision
      19 April 2023 @ 13:37
      1 0
      Bear with me. I am asking JB and the others what they think of this. Its certainly back down to interesting levels. But I think there is a counter argument based around the Fed reaction function.