Jury still out

Fed

The interplay between a market long USD + paid rates, and a central bank with one eye on falling inflation and weakish jobs data has pushed US 2-year yields and the dollar marginally lower over the past week. My theory remains that the data will not vindicate the hawkish setup, and we will see a more dovish regime as Warsh will be unable to match the peak hawkish vibe he delivered at the June 17 FOMC meeting. So far, that day marks the high in 2-year yields.

Note in the chart that the launchpad for 2-year yields pre-Warsh FOMC was 4.07% and we retested and held that level before Sintra and NFP. We still have not retested it, so the hawks remain narrowly in control despite the soft data. 2-year yields below 4.07% would mean the hawkish June 17 meeting has been fully rejected and below 4.02% is a strong sign of a regime shift where the doves are at the wheel.

I suppose the big issue this week is a lack of catalysts as we have only Waller today and FOMC Minutes from the Fed and not a lot of major economic data. While many USD-sensitive assets like gold, silver, and bitcoin (?) have rallied, there hasn’t been a huge move lower in the USD because specs continue to rip USDJPY now that the MOF passed on what many viewed as a spectacular opportunity to intervene into USD weakness on a semi-holiday after NFP. GBPUSD has rallied smartly, EURUSD is off the lows, but USD/Asia remains supported by buoyant USDJPY.

I suppose intervention is still possible at any moment, but the MOF’s absence late last week makes you wonder what is going on and definitely reduces any confidence in the importance of USDJPY over 162.00. I did not trade my strike, sadly. If I had, I’d be killing it on that trade right now. Now I am forced to pray for an MOF appearance.

I am moderately encouraged by the price action in USDKRW as we are now at the top strike of my put spread despite the zippy rebound in USDJPY. This is perhaps evidence that the USD selling for SK Hynix has begun. You can see here on the 5-minute chart that USDKRW has chosen to ignore the USDJPY move from 161.40 to 162.30. It’s a micro observation, but it does give me some hope that USDKRW can soon buckle and return to 1505.

For a full explanation of why I think the SK Hynix ADR listing is bearish USDKRW from now until approximately 14JUL, please see am/FX: TOtB and KRW.

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Oil

The Economist insisted that oil prices were not high enough on April 30, and late last week they stopped out of the call. So, anyone playing the Magazine Cover Indicator (short USO at $147) should be covering their oil shorts at this point (USO currently $104).

The two big Economist Cover trades of 2026 so far are long USD in February (fading their Dangerous Dollar headline) and short oil at the end of April after The Economist explained why oil prices were not yet high enough.

Both have been bangers.

Please see charts here.

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Calendar

As mentioned, we’ve got a fairly light calendar this week. The RBNZ is one highlight and I expect either no hike, or an extremely dovish one and done type of vibe. There is really no need for the RBNZ to hike, but they have laid enough groundwork and with a new Governor in the chair, an insurance hike is reasonable despite crumbling energy prices. Still, the multiple hikes in the strip look unnecessary and I expect a dovish hike or no hike from Breman and a lower NZD. I will consider a short NZD position in tomorrow’s am/FX.

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Final Thoughts

1. Would you like a signed copy of Alpha Trader or Trade Outside the Box for yourself, or as a gift?

My son is looking to make some extra cash before he heads off to school and so I told him to build a website where people can buy signed books and I’ll sell them to him at cost. You get a signed book for the normal retail price and he gets the margin.

Good gift… I will personalize it however you like.

Please note shipping outside the U.S. is insanely expensive. We cannot control that.

There are 10 Alpha Trader hardcovers plus many paperbacks. Now ’til August 20.

Here’s the site:    https://brent-donnelly-signed-books.myshopify.com

2. The semiconductor trade appears to have turned from a buy dips to sell rallies. Stocks like MU are currently still oversold, but the violence of the reversals has put MU’s blockbuster earnings deep and shrinking in the rearview mirror at this point. Note a few things in the next chart:

• Momentum divergence at the double top (downward-sloping red line in bottom panel).
• Price double topped after earnings at 1250.
• Currently oversold (second green circle).
• Moving averages and early June high (was previous all-time high) around 1080/1100. That is the new sell zone.

3. An excellent headline from TD!

4. Shout out to Timor-Leste! 1.4 million people live there.

Hi. Welcome to this week’s report. (To read about how I use and trade this report, see here.) USD longs have trimmed significantly as we were at +5 last week and only +2 this week. Once again, the +5 or -5 proves to be an extreme reading leading to a USD reversal. The biggest reversal has been in GBPUSD, while some pairs (USDCAD and USDJPY) have not reversed at all. Note that GBP momentum is now positive while positioning remains small short.

https://www.reddit.com/r/dataisbeautiful/comments/1uo27q7/oc_how_often_can_people_find_each_country_on_a/

Share of players of a geography game who clicked the correct location for a given country

good luck ⇅ be nimble