My entry in EURUSD was bad but I still think it goes higher. US goods inflation is cooling but that doesn’t mean people understand that. +Mexico. +Roaring Kitty.
A Russian town was flooded with tropical fruit juice when a Pepsi storage facility collapsed in 2017.
Non-water floods are rare and bizarre.
Long EURUSD @ 1.0877
Stop loss 1.0744
Take profit 1.1074
My timing on the entry into EURUSD was horrendous on Friday as critical resistance at 1.0885 held yet again. I believe this resistance will be taken out at some point, and the stop loss is far enough away to weather some pain, but obviously my tactics were suboptimal. Here’s the current state of play with regard to rate differentials.
I continue to believe the ECB is headed towards a hawkish cut and I continue to believe that US yields are in the process of topping out. Housing and goods prices look set to fall while energy prices are stable / lower. From Morning Brew:
You can see this in the goods-heavy Price Stats series published by State Street.
Human beings do not think in terms of MoM deceleration, or even YoY second derivatives, though. They think in terms of what they remember things used to cost and what things cost now. I can still easily remember when my auto insurance was 30% lower, for example, even though that was more than one month or one year ago.
Price shocks can impact people for life.
And some media outlets are even arguing that the definition of inflation has changed. This is more a financial literacy or semantics issue, but still points to how public perceptions of inflation do not correspond with PhD or economic textbook definitions. The disconnect between economist and public perceptions of the economy remains an important (though familiar) theme.
We are mid-way through the second VAR shock in the past two months for MXN as it looks like there could be a more decisive result than expected in Congress. Still, this looks more like panic than any sort of rational macroeconomic repricing. With every other asset class looking rather subdued, there is probably an opportunity to fade this, but obviously risk management is hard.
Speaking of risk management… See tweet here, via Mr. Green, to get a sense of things in memeland. Forget that the tweet is factually incorrect because Roaring Kitty actually just posted a few short weeks ago. The implication that an individual posting his portfolio on Reddit means that you can blindly follow him in max size with no regard for risk management is funny. In the way a clown falling down stairs is funny. Like, it’s funny, but you wince when you see it.
This week is punctuated by at least one big event per day with 2 X ISM, Swiss CPI, Bank of Canada, ECB, and data about US jobs on every day but Monday. Auto Sales haven’t mattered for eons, but with the focus moving to the demand side of the US economy, that figure might matter a bit from now on. Swiss CPI overnight will be of great interest as EURCHF has entered a significant correction phase.
Bruce Mehlman’s quarterly slide deck is out! Great coverage of US politics.
Have a highly-liquid day.
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This piece is mostly for people who are interested in backtesting
This could be a consolidation week as crosswinds now blow in FX and equities
