On the whole, this market trades a new story every other day (and sometimes goes through 4 economic cycles in the matter of 1 session); this could all revert just as quickly as it has rolled over. Still, it does not feel like investors are in a rush to buy the dip or defend any technical territory just yet.

Pixabay

I would keep an eye on miners as the two-day rollover has been vicious, considering investors have been constructive on this group given commodity supercycle views. I would mainly watch the S&P500 names – Nucor, FCX, NEM – which have been among the worst performers the last two sessions.

So, where does this leave markets?

Real yields should remain the dominant macro variable of 2022 from any pro's concern- it is remarkable how low they stay. I would position for traders to gravitate around a concept that undoubtedly real yields have further to rise – either because inflation expectations come down as growth expectations slow or further central bank hawkishness. The environment thus remains exceptionally challenging for risk appetite.

Oil

Commodities are soft across the board, and oil closed down 168bp Friday. For oil, reports that Chinese oil demand has fallen by the most since the Wuhan lockdown of 2020 reversed any thoughts of a weekend rally. Other reports also indicate that Russian oil has started to find new ways to reduce the risk of a global shortfall.

There's evidence of old commodities tricks at play with an increase in the number of tankers leaving Russia for "destination unknown." Indeed, this is a telltale sign the oil is being taken to larger ships at sea and unloaded and commingled with other cargo blurring the lines. The circular nature of much of the energy economy and how displaced Russian crude is sold to somewhere like India can free up other supplies for western economies.

What about the dollar?

EUR

Macron has regained his lead in the French polls, and the market is now pricing a July ECB hike. But Fed repricing has been even more aggressive, leaving EURUSD tracking rate differentials and the dollar benefiting from a very hawkish Fed.

GBP

Not all inflation is the same. UK inflation could be three times the BoE's target, but cost-push rather than demand-pull pressures are driving it; the UK consumer is already struggling with the higher cost of living, indicating the demand side of the economy is already waving the red flags.

The BoE has been open and transparent that it will raise rates further, but the market overestimates just how far that tightening will go. The terminal rate in the US could easily be 3.5%. In the UK, it is unlikely to be more than 1.5%.

JPY

Tokyo demand for USDJPY took the pair from 128.20/30 up to a high near 128.70 before sellers returned. This was the fourth time last week that the pair has topped out in the 128.70 zone, and this level remains critical resistance in the short term.

Media reports that Japanese Finance Minister Suzuki and US Treasury Secretary Yellen did discuss joint intervention to support JPY. The tone on the US side was one of "positive consideration," sending USDJPY down to the overnight lows near 127.74, but dip buyers were waiting.

Japanese March CPI data showed prices increasing at the fastest pace in more than two years; however, this move was driven mainly by energy and validated BoJ Governor Kuroda's thesis that this is cost-push inflation (not demand-pull). Consequently, it is unlikely the BoJ will change policy near-term (unless it explicitly wants JPY to strengthen). It is also unlikely that the MoF will intervene at these levels, especially with the BoJ reaffirming its adherence to YCC.

CNH

The consensus out there is that it's tough to pick a top. But if the PBoC gets uncomfortable with the pace of the move, which might cause some participants to back off. Indeed this could be a messy correction lower as dealers are now likely long USDs participating on the way up. I think that is why; we saw profit-taking when we neared 6.55

But none of the factors you would lay out for this move higher in USDCNH are different than what the market was arguing for months, so, interestingly, everyone has piled in on this move this week, and it has so far worked out.