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King Dollar's safe-haven surge has only just begun

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Posted by Robert Zurrer

on Friday, 01 June 2018 08:42

kingdRise in index has a lot of myriad causes

The US Dollar Index's 4.5 per cent rise since mid-April has myriad causes. One, the Italian election annihilated the political center and produced the worst possible coalition scenario of the far left (Five Star) and the far right (Northern League), two populist, anti-euro parties that won 54 per cent of the vote. Italy has a de facto bankrupt banking system, a 130 per cent public debt/GDP ratio, vast regional inequalities (Milan and Calabria are different planets, as are Lombardia and Veneto from Sardinia) a toxic Mafia presence and a fiscal nightmare. Now its politicians want to renege on the fiscal/pension reforms imposed by Berlin and Brussels in 2011. This is the nightmare scenario for the euro and the euro is 57 per cent of the US Dollar Index.

Two, the Italian-German Bund debt spread has surged, as has Italy's risk of sovereign default. The euro's fall to its SNB's floor against the Swiss franc at 1.20 is an ominous message of systemic risk. There is no way the ECB can begin quantitative tightening in September. A premature end to Dr Draghi's asset purchase programme could literally trigger a Greek-style sovereign debt crisis - only on a far bigger scale. Italy has the third-largest bond market in the world. If Italy goes bad, Planet Forex will script the requiem for the euro and the dream born in the Treaty of Rome. The safe-haven bid in the US dollar has only just begun.

Three, the US-China deal averts an immediate trade war, though it is mathematically impossible for the US trade deficit to fall $200 billion on higher Chinese imports of US energy and agribusiness products. Chinese exports to the US will have to fall, a real risk to growth in Japan, South Korea, Taiwan, Singapore and Malaysia. Net-net, this means lower Asian currencies against the US dollar.

Four, the correlation coefficient between the greenback and Uncle Sam debt yield has risen in the past month with a vengeance. Japanese inflation data shows Governor Kuroda's 2 per cent inflation target is a central banker's midsummer nights fantasy. This means there is no chance that the Bank of Japan will exit its zero bond yield policy in 2018. Shinzo Abe is mired in a political scandal and yet another LDP factional night of the long knives. The path to ¥110, a target I outlined a month ago, was inevitable given US Treasury-JGB yield spreads, Fed-BoJ monetary tightening timetables and the political time bomb that now haunts Abenomics.

Five, the risk of emerging markets contagion is all too real as I watch the Turkish lira and the Argentine peso meltdown. There is $220 billion in external debt issued by non-financial Turkish corporates. There is $14 trillion of debt outside the US held by non-American banks. Deutsche Bank has $25 billion in equity capital and $1.7 trillion in liabilities. Is there a Lehman scale banking time bomb in Europe? Is the Pope Catholic? The world is on the precipice of a major funding and debt crisis. The US dollar is the world's natural safe-haven currency as the US banking system is the only true credible deposit insurance scheme for savings when the lights go out in Europe.

Six, I was stunned to see the Canadian dollar trade as low as 1.2980 (Nafta?) even though Brent crude surged to $80 a barrel. When petrocurrencies fall while Brent hits 4-year highs, I get nervous. I remember the bitter memories of 2007 when I seriously thought that we were doomed to relive the Great Depression. Every post-war US recession has been preceded by a surge price of crude oil. Will the recession of 2019 be any different?

Seven, financial markets now ignore the US trade and budget deficits and focus on relative US economic outperformance versus Europe. This is the reason the Fed Funds futures contract implies three more rate hikes in 2018 and two rate hikes in 2019. King Dollar is back from its post-election Trumpian netherworld and King Dollar will now kick (rhymes with) glass My next target? ?1.08.

Eight, The Turkish lira has plunged to 4.80 lira against the US dollar despite central bank rate hike that is anathema to Erdogan. The AKP's top economics honcho Mehmet Simsek will fly to London to reassure terrified investors. Too little, too late; a financial crisis and deep recession is now inevitable even as Erdogan goes to the polls to seek reelection on June 24. The Ottoman Empire died amid a tsunami of foreign debt. A deadly endgame awaits the world on the Bosphorus.

The writer is a global equities strategist and fund manager. He can be contacted at mateinkhalid09@gmail.com.



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Currency

A Spiking Dollar = Emerging Market Chaos

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Posted by John Rubino - Dollarcollapse.com

on Tuesday, 29 May 2018 06:45

With the US dollar gaining strength across the currency market and Treasury yields coming off significantly, it's easy to conclude the underlining the investor mood of risk aversion is pushing those looking for safety into the US Dollar - R Zurrer for Money Talks

The dollar collapse thesis – which ends with all fiat currencies achieving their intrinsic value of zero — doesn’t preclude some thrills and chills along the way, in which some currencies fall faster than others and wreak havoc on various parts of the global economy.

This might be one of those times, as instability in the Middle East, Europe, and parts of Latin America sends worried capital pouring into the US, pushing the dollar up from its recent lows:

US-dollar-May-18

This may not look like much of a spike in the historical scheme of things, but it actually is, because a handful of developing countries have, for reasons that defy both history and common sense, decided to borrow trillions of US dollars. Now, with the dollar appreciating versus their local currencies, they’re having trouble making the suddenly-much-more-expensive interest payments.

Why would a country whose money is the peso or the real conclude that it’s a good idea to bet that their currency will appreciate versus those of other countries for decades to come? Who knows? But they’ve done it, and big banks around the world have enabled them. 

Here’s a chart from Bloomberg showing that the foreign currency debt of emerging market countries has nearly tripled since 2008, to more than $8 trillion (most of which is denominated in dollars, with some euros tossed in for diversification), which they now have to pay back regardless of where the dollar goes relative to the currency in which their governments collect taxes or their corporations make sales. 

image.png

And here’s an excerpt from the Bloomberg article that included the above chart:

Emerging-Market Stress Just Begun as Record Debt Wall Looms

Emerging-market companies and governments straining to deal with the rising cost of borrowing in dollars face increasing pressure as a record slew of bonds come due.

Some $249 billion needs to be repaid or refinanced through next year, according to data compiled by Bloomberg. That’s a legacy of a decade-long debt binge during which emerging markets more than doubled their borrowing in dollars, ignoring the many lessons of history from the 1980s Latin American debt crisis, the 1990s Asian financial crisis and the 2000s Argentine default.

Even since the 2013 taper tantrum, the group’s dollar debt has climbed in excess of $1 trillion — more than the combined size of the Mexican and Thai economies, Institute of International Finance data show.

“We look to be in for a pretty rough patch near term,” says Sonja Gibbs, senior director for capital markets in Washington at the IIF, an association of the world’s biggest banks. “The sharper the rise in the dollar and rates, the greater the near-term contagion risk.” Rising U.S. rates will have a knock-on effect even in local debt markets, she said.

 

Emerging-market-debt-maturities

China has far and away the most dollar debt coming due through next year among emerging markets. Though much of the debt is also owned by Chinese investors, strains have become clear in recent weeks, with some companies unable to issue at their preferred amounts and maturities, and others, unusually, marketing floating-rate notes.

Despite having defaulted in the early 2000s, Argentina has issued so much dollar debt that it ranks No. 4 on the list — a testament in part to the impact that unprecedented U.S., European and Japanese monetary stimulus had in spurring a global hunt for yield since the 2007-09 financial crisis.

Turkey has the largest foreign debt load relative to gross domestic product, and perhaps not coincidentally has one of the worst-performing currencies against the dollar this year, down about 21 percent. Only Argentina’s peso has done worse among 24 emerging nations tracked by Bloomberg — another country that ranks high on the debt metric.

The rapid build-up in debt over the past decade has alarmed some — including Harvard economist Carmen Reinhart, who made headlines saying emerging markets are worse off today than during the 2008 crisis and 2013 taper tantrum.

“This is not gloom-and-doom, but there are a lot of internal and external vulnerabilities now that were not there during the taper tantrum,” Gibbs said last week.

Why should Americans care if Turkey or Argentina defaults on their bonds? Because institutions all over the world bought those bonds in more innocent times (see Here’s When Everyone Should Have Known That Argentina Would Implode), and have built share prices, pension payouts and arbitrage strategies around them. If the bonds blow up, so do a lot of banks, hedge funds and pension funds. 

And if the resulting global anxiety sends even more flight capital into the dollar – pushing its exchange rate up even further and making emerging market debts even harder to manage – we might be looking at a negative feedback look with systemic implications.



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Currency

Soaring dollar will lead to “explosive” market repricing

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Posted by ZeroHedge

on Friday, 25 May 2018 07:19

"A curious" event that took place about a month ago, aggravated by other "Big Changes" like the US considering tariffs on German, Japanese, North Korea cancelling the summit then virtually begging to reinstate, home prices “skyrocketing” while home sales fall, Bitcoin tumbling on news of DOJ probe into price manipulation there's more Big Change coming - R. Zurrer for Money Talks

Something curious took place one month ago when the PBOC announced on April 17 that it would cut the reserve requirement ratio (RRR) by 1% to ease financial conditions: it broke what until then had been a rangebound market for both the US Dollar and the US 10Y Treasury, sending both the dollar index and 10Y yields soaring...

10Y vs USD

... which led to an immediate tightening in financial conditions both domestically and around the globe, and which has - at least initially - manifested itself in a sharp repricing of emerging market risk, resulting in a plunge EM currencies, bonds and stocks.

2018-05-18 11-36-59

Adding to the market response, this violent move took place at the same time as geopolitical fears about Iran oil exports amid concerns about a new war in the middle east and Trump's nuclear deal pullout, sent oil soaring - with Brent rising above $80 this week for the first time since 2014 - a move which...

.....continue reading more HERE

 

 

 



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Currency

Bitcoin whales dump $100 million of digital currency in 24 hours

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Posted by MarketWatch

on Wednesday, 18 April 2018 05:41

 

 

 

 

Those still hoping for Bitcoin $200,000 were given a serious setback by a $200. drop in 20 minutes, possibly by a single seller. Trading this morning at $8,069. Bitcoin is a long way from its alltime intraday high of $19,750. - R. Zurrer for Money Talks

MW-ES103 whalew 20160721075436 MG

Did a single seller move the price of bitcoin $200 in 20 minutes?

The price of bitcoin took a dive Tuesday, falling by more than $200 in under 20 minutes, a move that could have been the result of a single seller unloading a sizeable amount of the digital currency.

The balance of wallet 3D2oetdNuZUqQHPJmcMDDHYoqkyNVsFk9r — an anonymous digital account which is valued at $1.49 billion — fell by 6,500 bitcoin Tuesday, with the average sale price sale being $8,146.70, a total value of just over $50 million, according to bitinfocharts

The sale comes a day after the third-largest wallet, which famously purchased over $400 million in bitcoin in February, let go of 6,600 bitcoin at an average price of $8,026. All told, the two whales dumped over $100 million of bitcoin within 24 hours.

Screenshot 2018-04-18 06.54.03

As expected, online forums lit up, speculating on what or who was behind the sharp move lower. 

“Holy hell, these dumps out of nowhere. I was looking at some alts, then I check back to bitcoin and BAM it dropped $200 instantly,” one Reddit user wrote. 

Initial reaction was to point the finger at New York Attorney General Eric Schneiderman, who announced he was launching an inquiry into 13 cryptocurrency exchanges, seeking information including exchange fees, volume data and procedures around margin trading. 

However, that news broke nearly four hours before bitcoin’s move lower.

MW-GH508 balanc 20180417160201 NS

Previous selloffs in bitcoin have been blamed on sizeable single-user selling, with the most famous case being the Mt. Gox sale on March 7, when its trustees announced they had liquidated over $400 million in bitcoin and bitcoin cash. 

Significant selling seems to be the flavor of the month. On April 12, the second-biggest bitcoin wallet sold $38 million of the No. 1 digital currency. 

Early Wednesday, a single bitcoin BTCUSD, +2.19%   was worth $8,111.56, up 2.5% after battling to hold above the $8,000 mark, having got a boost late Tuesday on upbeat remarks from International Monetary Fund Managing Director Christine Lagarde.



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Currency

Major Currency Pairs Summary

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Posted by Jack Crooks - Currency Currents

on Tuesday, 10 April 2018 05:32

Ever critical for the value of investments in different currencies, the US Dollar is down again today for the third day in a row. Jack Crook's forecast of the major currency pairs has been very accurate to date, and this analysis will tell you where you can expect the US Dollar, Euro, CDN Dollar, Japanese Yen Australian Dollar and the Great British Pound will be headed next. - R. Zurrer for Money Talks

US Dollar Index

Update: 8 April 2018/4:03 am ET

Price at update: 90.11

Wave Description: (i)|[v]|5 final thrust lower

Price Target: 87.27
Resistance: 90.98|92.40
Support: 89.82| 88.25
Forecast Negation: 92.98

Wave Analysis

Is Wave [iv]’s maddening triangle pattern finally complete? Did we see a near-term reversal pattern on Friday? We are working from the premise of yes and yes; and it is why we got long EUR/USD. Targeting down to at least 87.27 in Wave [v].

dxy

Larger Chart

 

EUR/USD Daily

Update: 8 April 2018/4:03 pm ET

Price at update: 1.2281

Wave Description: (i)|[i]|5 impulse rally

Price Target: 1.2623
Resistance: 1.2623 1.2344
Support: 1.2476 1.2153
Forecast Negation: 1.1960

Wave Analysis

Working off the premise that wave [iv] complex triangle pattern is complete with the bullish engulfing reversal pattern on Friday. (Note last two recent bullish engulfing patterns spiked out short-term bottom—each followed by an approximate 300 pip bounce.) We have revised our price target to 1.2623 based on confluence extension of Wave [i] by 1.618 and Wave [v] equality with Wave [1]—both carry exactly to 1.2623 (our minimum target). There is scope to go higher: targets above 1.2623 are 1.2779; then 1.2876.

eur

Larger Chart

USD/CAD Daily

Update: 8 April 2018/4:03 pm ET

Price at update: 1.2769

Wave Description: B/(C)/[2] Zig Zag

Price Target: 1.2496 (then 1.3424)
Resistance: 1.2943|1.3128|0.7916
Support: 1.22729 | 1.2581|1.2445
Forecast Negation: 1.3124
  
Wave Analysis
Another zig zag pattern seems in play here- A-B-C targeting eventually to 1.3424 to complete major wave (C) of [2]. But in the meantime, we are expecting a push down to 1.2496-level in minor [c] to complete Wave B. Note the head and shoulders setup in this chart; the neckline was broken today and the price target of 1.2496 is based on the that pattern.

cdn

 

Larger Chart

USD/JPY Daily

Update: 8 April 2018/4:03 pm ET

Price at update: 106.79

Wave Description: [iv]|5|(1) impulse rally

Price Target: 103.39 
Resistance: 107.49/ 107.90
Support: 104.55|103.3 9

Forecast Negation: 110.83

Wave Analysis
We were thinking Wave [iv] of a narrowing triangle pattern was complete, but it seems there is more to go. But, this is a very complex correction to confidence on exactly how this plays out is murky still. Either way we do believe this move down targets to at least 103.39 in a final Wave [v] of 5 of (1); after that a multi-month rally should resume.

jpy

 

*Note, if you are interested in the Great British Pound and/or the Australian Dollar for the same analysis go HERE

blswansym

blswan

 

 

 

 



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