As goes the Dollar as goes volatility and risk assets. After Whirlybird said the Dollar had room to weaken (sort of) we got validation of the call we made BEFORE the Fed: “95 before 110” was the trade named (see Emerging Money last week).
This is a 6 week trade until we hit the May. At that point, to over-simplify, it may be time to walk away. Keep you posted…in the meantime RSI’s in the DXY as high as we saw a week ago don’t exist without a correction. and the Fed is in a tough place right now.
We also said 1.06 would hold on the Euro and we are happy enough with the move so far. Amazing the run in EU assets and after seven straight up weeks, pick your spots to enter if you have not. We are cautious on the some of the high flyers, like EU auto stocks but are not far from jumping back onto the dance floor. We still like Spain and Italy over Germany. EWP is a 5% div yield.
VIX now below key levels and looks to be a place where we would not be chasing volatility in this window. The Dollar took all the wind out of the VIX in the same way it will drive the VIX higher by May.
Quiet but amazing move in Copper over the last few days and this has us back to $2.80/lb or where we were before the bottom fell out. Do your screens and compare to where miners were trading in the first week of the year. This is where you have your most sensitive upside in this weaker Dollar environment. $FCX, $BHP and $SCCO are the places we would look.
And as Oil (BRENT!) has found another base despite all the doom and gloom and inventory data (from the USA!, not globally) the CRB index may have held that 200 bottom we think is the testing place to build from.
What does this mean for EM? Predictable range on the $EEM to be respected but we are calling for a break from $41.00 in the Dollar window. Too much has happened to EM currencies along the road. This is a place we would watch the top end of the well-established TYD range and say this is where you can ADD to positioning. Even the spread to the SPY looks like we can run to .1975 testing point.
At glance at the MSCI EM says 995 is breakout or predictable end of the rally…again we repeat what we said above, this run may have some legs through.
…And the currencies most oversold offer the most opportunity here. Meanwhile Brazil touched 2008 lows in USD terms last week and may be where we see dedicated EM guys doing more than nibbling. This is what I'm hearing…
Watch the Ibovespa to be the first index to break out OR fail. We are there. 52K on the IBOV for me is the test.