Muted

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The reaction to weakish CPI and weak Retail Sales has been muted. The market is waiting for real money and CTAs to come in and sell dollars. I think they will, but their absence is notable so far.

by Brent Donnelly

May 15, 2024

Why are these golden arches… Teal?

Current Views

Long EURUSD @ 1.0785

Stop loss 1.0694

CPI

The CPI and Retail Sales combination point to more USD weakness. The initial reaction has been muted because the market went into the release short dollars, but I think that real money and CTA flow will come and take us to new USD lows. Chart wise, the first hurdle in EURUSD is 1.0875/85. If we get some momentum today, the deviation from the 100-hour MA (my favorite overbought/oversold indicator) comes in at 1.0950. The slow, grinding nature of the EURUSD rally so far means it’s not overbought at all right now.

USDJPY is also interesting given the huge gap between fair value as suggested by yields and spot, but with vols so low, the risk with USDJPY is that the carry machines return and start gobbling again. As such, I think cyclical currencies like AUD, SEK, MXN, and BRL will perform better than JPY.

You can see here that USDBRL is tracing out a huge triangle and despite the zippy false break, as long as we are below the band of resistance at 5.18/5.20, the outlook is bearish.

Shelter and gasoline accounted for 70% of the rise in CPI, and in May, gasoline has done this:

And it’s not like the weak Retail Sales data today was an aberration. It is consistent with disinflationary demand drop messages coming from SBUX, WMT, AMZN, CVS, and others. Furthermore, we are no longer living in a world where economists are continually underestimating the US economy. Here is the cumulative miss in Retail Sales back to 2012. The chart is a bit noisy, but it looks like the strong trend of Retail Sales beats fizzled out late in 2023.

Final Thoughts

Yesterday’s non sequitur generated quite a lot of angst among UK cheddar lovers. Cheddar is not always orange. For the most legit of cheddar, please see here: https://www.cheddargorgecheese.com/.

Have a salty, ultra-processed day.

Sedona has a strict building code that will not allow bright colors that clash with the natural beauty of the area. So when McDonald’s wanted to open there in 1993, they proposed a teal blue logo, and the town agreed. Teal was super hot back then, with the San Jose Sharks, Anaheim Ducks, and Florida Marlins all hopping on the bandwagon with teal jerseys when they joined their respective leagues in the early 1990s. Thankfully, the Raptors (who came into the NBA just after those teams) opted for a much cooler colour scheme. HT CnD.