The Dollar Takes A Big Fall: Macro Charts You Must Know #23
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The Dollar has tumbled against almost everything else, while interest rates remain elevated. But, the US yield curve has gone back to flattening even as oil prices look to test the key $84 level again. The return of stagflation perhaps?
- USD is broadly weaker this week
- Has either broken out of established trends (GBP), or is in the midst of attempting to (AUD, CAD, EUR)
- What does this imply? The sharp move lower runs against factors that are conventionally held to be bullish – rising rates and Fed hawkishness
- Considering that the USD has been strengthening for about the past ~7 months, is it possible that global Dollar liquidity conditions have suddenly improved, or is this a good old fashioned squeeze?
- Interest rates continue to remain elevated
- BUT, the US yield curve has returned to flattening again, after a brief reprieve last week; and US breakevens continue to NOT move higher
- 10y yields have been rallying for ~6 months, about the same as the USD. Does this week’s USD weakness mark a change in that relationship?
- Commodities are back to trading according to idiosyncratic factors after the initial Omicron shock
- Oil surged higher this week and is close to testing its triple top ~$84. If oil prices remain this high and the US yield curve keeps flattening, it’ll only be a matter of time before “Stagflation” makes a return to the headlines
- Base metal prices aren’t indicating growing demand. Copper remains in its wide range and Iron Ore is still in its down trend, although Aluminium looks set to continue 2021’s massive rally
- Gold still isn’t doing much, especially given this week’s USD weakness, and how inflation is running high
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