The Protest Playbook

The rapid escalation of social discord in the United States highlights another reason that debt this decade will spiral out of control. The US dollar starts the month on a down note after May showed the biggest monthly USD decline since December. Aussie, silver and CAD lead, while JPY and CHF lag. The USDX chart highlights the latest headfake from the US dollar, possibly justifying Ashraf's repeated calls for shorting USD bounces, instead of joining the herd calls of buying USD rallies. CFTC positioning data showed few notable changes. Our Premium Insights' trades long EURUSD and XAGUSD hit their final targets for +200-pips each. There are currently 3 remaining open trades.

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The scope and spread of US protests is truly shocking with more cities implementing curfews than any time since Martin Luther King Jr's assassination in 1968. Markets were paying very little attention on Friday but to start the week the US dollar is slumping and gold is higher.

The protests are also another reason to be skeptical about growth and wary of a further spike in virus cases (not just because of the protests themselves, but because they show that people are quickly abandoning social distancing).

Without touching on the social causes of the protests (you can find plenty of that elsewhere) the economic playbook is clear. Historically, there are two ways governments deal with social unrest: By increasing social spending; or by increasing authoritarianism.

Both are costly. Given that the virus has already extinguished fiscal discipline and that there's no appetite for tax hikes, this adds another reason to expect this decade to be dominated by runaway fiscal spending and debt monetization.

What's interesting in early trade is that the US dollar is lagging, suggesting this is a uniquely American problem. That's an interesting potential paradigm.

What's also notable is that the Australian dollar broke above resistance near 0.6700. It's a country that's levered to global growth but it's also one that has largely defeated the coronavirus and where runaway fiscal spending is less of a concern – at least for now.

Less surprising is that gold and silver are higher again. At a time like this, there's no need to overthink the simple safe haven trade.

CFTC Commitments of Traders

EUR +75K vs +72K prior GBP -22K vs -19K prior JPY +35K vs +28K prior CHF +9K vs +9K prior CAD -34K vs -35K prior AUD -40K vs -39K prior NZD -15K vs -16K prior