The US dollar and Japanese Yen are, in my opinion, the two most important currencies to use as tools for defining the global macro situation. USD, especially, on the larger liquidity picture, and Yen perhaps for shorter-term indications, if the nebulous “Yen carry trade” (YCT) is still unwinding.
USD (DXY) bounced hard, causing some market upset to start the week. It then turned down at the daily EMA 20, which is a viable bounce objective (along with 102.70, the declining SMA 50 at 103.30 and resistance at 104). USD is in a bearish-biased trend (kicked off by the lower high in June), and could easily tank the support level at 100.70, at which it poked a fresh low last week.
There has been some moderate relief of the bear pressure with the bounce to the EMA 20, and I would think it would take another asset market liquidity scare of some kind to drive Uncle Buck upward to higher bounce levels (e.g. 102.70, 104). Meanwhile, the moderate bounce did refuel the bear potential to a degree by relieving a deeply oversold condition.
If USD does fail again, the main currency related thing standing in the way of many asset markets could be the Yen, which is now reasserting its bull move. Here I wonder if the YCT is still in play, as that unwinding was probably a knee-jerk among hedge funds, quants and their machines. I do not keep up on the Bank of Japan, but policy will matter as well, and if the YCT is already effectively unwound, maybe this currency pair (JPYUSD) is less of a macro factor.
I would say that the US dollar remains the foil to global asset markets, including of course, the precious metals. But with USD dropping due to oncoming dovish policy, which itself is due to economic signals that continue their slow grind southward, it would be wise to have discretion among sectors.
For example, the gold mining industry is downright counter-cyclical. Healthcare is not cyclical, Utes are defensive in a declining interest rate environment. But generally, if the past is any prologue to the future, a weak USD can be used to leverage certain asset markets as well.
More to come in updates and especially, reports. But I just wanted to put some thoughts down on paper this morning.
