Yields Break Metals, Cryptos
President-elect Biden promised to reveal a new spending proposal worth “trillions” on Thursday in what might be the defining economic moment of his Presidency before it even begins. The new wave of spending combined with the $900B just issue threatens to upend the dollar trade at a time when CFTC positioning data shows a crowded short-dollar trade.
The US dollar has been the top-performing major currency since the Senate surprise and Biden's proposal underscores what has changed. Yes, the spending will create an enormous deficit but it will also lead to a boom in growth. Goldman Sachs is forecasting +6.2% GDP growth this year and that's before the details of the package on Thursday.
Another thing to consider is that the US (and UK) are receiving vaccine doses far quicker than elsewhere and that's going to lead to better relative growth.
On Friday, non-farm payrolls were soft but commentary from Clarida the same day highlighted diminished downside risks due to the vaccine. He also said policy is “exactly where we want it,” which likely kills talk of more QE, a WAM extension or anything else dovish. It means the next move from the Fed will be towards tightening. On QE he said he 'expects' to keep the pace through 2021 but he didn't rule out a taper.
Short-dollar is a strong consensus trade in 2021 and there are a multitude of reasons to expect long-term USD weakness but there are reasons to fear a squeeze in the near term, included in some of the crowded CFTC positions.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +143K vs +143K prior
GBP +4K vs +5K prior
JPY +50K vs +47K prior
CHF +9K vs +12K prior
CAD +14K vs +15K prior
AUD -4K vs -7K prior
NZD +12K vs +15K prior
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