Mid-Week Update / Alerts
October 11, 2023
The risk relief continues for the first half of the week. I warned on Monday’s ATW that geopolitical events do not normally form a shift change in markets. So far, this holds true, although it is still too early to tell. I find it hard to be overly focused on what those shocking events could mean for markets in light of the countless lives lost. Markets move on; they don’t have the consciousness we humans have. Ultimately, they don’t care. They didn’t care in the past, and that will remain so. We, as humans, however, can care. I have stayed away from Twitter for the past few days just because I didn’t want to feel even angrier about those atrocious events than I already am. It helps a little, but it will take some time to heal. I am sensitive like that.
But let’s now go back to business in an orderly fashion. Bonds have supported the risk rally, as the vicious sell-off over the past weeks is stalling, and curves have stopped steepening. I have sent out only one important chart this week, which needs your consideration. The DXY (broad USD) is stalling on the weekly model, with the reversal now in play. Yes, I have slightly played around with the colour scheme a bit in order to make it less dark. I think more colourful charts also play with our biases, so I have opted for a more neutral setting. Let me know your thoughts!
Looking at it on the daily timeframes, we are now just holding the 20 ema while we are still in upside momentum. With the Fed seemingly rolling over and data softening, you can easily envisage a weakening USD after the recent meteoric rise, which would give a reflationary boost to risk assets and commodities.
The market which holds the keys to such an event unfolding is obviously found in rates. With the upcoming FOMC minutes and tomorrow’s CPI, it is worth considering a few options on how this can unfold from here (more details in the paid section below).
On this note, it is interesting to see how the 2-yr (ZT) future is continuing to form a base, with the 20 ema proving immediate support. Momentum is still short, although we are nearing the flip point to a long.
Let’s now focus on the upcoming CPI, consumer credit card spending data and other elements of the macro universe where the model is flashing up some alerts.