Investors are fading the Federal Reserve's gloomy outlook after a sustained, stronger-than-consensus run of US economic data. At the same time, they are supported by the Fed unabashedly "risk-on" mantra of monetizing all debt, judging by the steady bid in stock markets.
At the same time, range-trading UST yields and low rates-volatility suggest investors are embracing the Fed's promise to keep policy accommodative for the foreseeable future.
The US dollar is trading firmer this week, despite an 'up' week for equities, which shows that the greenback can decouple from equities, having exhibited a robust negative correlation since mid-May.
G10 FX
In G10 FX, the outperformance of USD has been especially pronounced against GBP despite a hawkish Bank of England delivering a surprise with the pace of asset purchases. The BoE's Monetary Policy Committee voted 8-1 in favor of adding GBP100 bn of QE.
The GBP and EUR continue to sell off, despite the BoE being less dovish and EU debt mutualization. The broader US dollar strength is a developing sign that investors are increasingly focusing on US exceptionalism in coming out of the crisis and that the UK and EU economies will not keep pace.
Surprisingly high-carry currencies are struggling a touch despite meager and stable US rates-volatility. The lull could be reflecting an increased focus on localized health care crisis, but it is too early to tell.
However, I remain relatively biased towards the local high-yielders, especially the IDR, which provides some decent yield. With the Bank of Indonesia seemingly committed to keeping the IDR from moving higher, it looks like a good trade as any to express an Asia risk-on bias.
I still haven't mustered the courage to step back into the USD/INR yet, but, once the COVID-19 crises ease and, since oil prices should remain relatively contained, the INR could be another excellent trade, albeit a more risky way to express a similar leaning.
I 've never traded on fantasy before, but I had a lucid dream that the vaccine will be ready in time for my parents' annual six-month stay in Hua Hin Thailand. So, I bought more THB .... but please do not trade on dreams in which I need the THB for property investments. And why I mentioned this? I have no idea, I guess it's Friday.
Oil looks to be headed for a weekly gain on further signs that demand is picking up as the world emerges from coronavirus lockdown. The early move in oil was a bit too gappy, so if you were stopped on a 50-cent trailer, we advise buying again at stop -80 cents on a break-even on the 50 %. No risk trade.
Options expiry today will also focus on a prevalent view, based on early flows this week, that there will continue to be a bid to the broader market into the quadruple "witching" event (week-, month-, quarter-, half-year-end), which may have explained the sharp move higher in risk during the pre-Asia open session
As US exceptionalism comes back to the fore, the need for gold in one's portfolio becomes less apparent.