Is The US Dollar Bottoming?

In this week’s Dirty Dozen [CHART PACK] we look at investor flows, bitcoin extension, USD positioning, EMFX sentiment, inflation indicators, and an Ag-tech play, plus more…

Let’s dive in.

***click charts to enlarge***

  1. BofA’s latest “Flow Show” noted that investors piled into gold at their quickest pace in months last week. Other highlights are below.

  1. Their Bull & Bear Indicator is at 7.1 showing sentiment is strongly bullish… this is still below levels that trigger a sell signal though. More upside is likely over the next few weeks.

  1. The run in bitcoin is something to behold.

  1. Top calling is a costly endeavor in a trend such as this (I know, I thought myself smart taking half-profits 50%ish ago). The near-term chart shows bitcoin is incredibly extended from its 200-day moving average.

But overbought can become *really* overbought.

  1. The US dollar is down at its 2018 lows, an area where it may finally find some support. Citi’s FX Pain Index shows FX Funds haven’t been this short US dollars since the DXY 2011 bottom.

  1. JP Morgan writes “our top-down EM FX positioning indicators imply that EM FX positioning is comfortably above historical averages. Our EM FX risk appetite index combines several key technical indicators into a headline measure using a PCA approach, including local EM bond and equity fund flows, direct foreign investor EM local bond and equity purchases, Commitment of Traders positioning data, FX implied volatility, and RSI indicators(Exhibit 4). Traditionally the indicator has served as a good mean reversion indicator at its extremes of +/-2 score.” We’re keeping an eye on US real yields as they should lead any reversal in this reflation trade.

  1. Speaking of EMs, the MSCI Emerging Market Index just hit an all-time high.

  1. While we’re due for a washout in the short USD/long reflation/EM trade sometime in the near-term, the long-term capital concentration dynamics still strongly support an enduring bull market in EM.
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Disclaimer: All statements are solely opinions and are for educational purposes only.

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