Thank you, Mr. Repo, for sharing your thoughts and giving us some quick look into your framework.
I had a doubt regarding your long USD idea. Since I've been following you for a couple months now, my sense is that this is a shorter term idea, and that you tend to move your book fairly often, would that be a fair assesment?
If that's the case, what do you think on a more structural or even cyclical basis regarding the USD?
As of now, at least for euro investor (and please correct me if I'm wrong), long DE 10yrs yield better than long US 10yrs FX hedged. If the tariffs do put a floor or rising pressure to US CPI, and also deflationary pressure in EU, couldn't the mentioned differential keep on widening in favor of DE 10yrs? (if ECB and FED keep going in different directions, with the former cutting and the latter staying).
In addition, BBB passes into law, and longer bonds have a hard time to catch a bid.
Wouldn't that scenario, coupled with a decade + of huge long USD buildup in developed countries (Japan, EU, CAD, UK) that have remained unhedged (or at least not fully hedged) provoke a sort of stampede of people hedging their long USD and, therefore, lowering the greenback?
Might be off here, just curious about your thoughts.
that‘s right. My typical trade horizon is a few weeks up to 2-3 months. I usually cut losing trades faster than that.
Structurally, I don’t know what could replace the US dollar. EUR, JPY, GBP, CNY, etc. are not really an alternative in my opinion. The US is also still the best place to do business. Should we get into an environment in which institutions favor e.g., Europe or EM over the US for the next few years, we could see a longer bear market in the US dollar.
But it feels like US dollar sentiment is already really bearish. The dominating macro narrative is clearly USD-negative. Sometimes, in these kinds of situation, herding/group think takes over. That doesn’t mean the consensus is not correct - it can be correct - it only means if it is wrong, the move in the other direction could be large because everyone is positioned the same way.
That is why I think the risk-reward to short US dollar tactically is not great anymore. Of course, I could be wrong about that. But imagine Trump‘s policies show up positively in the data. Or the administration pulls back a bit and behaves more friendly with its allies. The narrative could change quickly.
Yield differentials can widen further, but is that really still bearish US dollar if they have already decoupled? I would think either the US dollar or yield differentials have to play catch-up.
Thank you, Mr. Repo, for sharing your thoughts and giving us some quick look into your framework.
I had a doubt regarding your long USD idea. Since I've been following you for a couple months now, my sense is that this is a shorter term idea, and that you tend to move your book fairly often, would that be a fair assesment?
If that's the case, what do you think on a more structural or even cyclical basis regarding the USD?
As of now, at least for euro investor (and please correct me if I'm wrong), long DE 10yrs yield better than long US 10yrs FX hedged. If the tariffs do put a floor or rising pressure to US CPI, and also deflationary pressure in EU, couldn't the mentioned differential keep on widening in favor of DE 10yrs? (if ECB and FED keep going in different directions, with the former cutting and the latter staying).
In addition, BBB passes into law, and longer bonds have a hard time to catch a bid.
Wouldn't that scenario, coupled with a decade + of huge long USD buildup in developed countries (Japan, EU, CAD, UK) that have remained unhedged (or at least not fully hedged) provoke a sort of stampede of people hedging their long USD and, therefore, lowering the greenback?
Might be off here, just curious about your thoughts.
Thank you for a great piece!
BEst,
Valentino
Hey Valentino,
that‘s right. My typical trade horizon is a few weeks up to 2-3 months. I usually cut losing trades faster than that.
Structurally, I don’t know what could replace the US dollar. EUR, JPY, GBP, CNY, etc. are not really an alternative in my opinion. The US is also still the best place to do business. Should we get into an environment in which institutions favor e.g., Europe or EM over the US for the next few years, we could see a longer bear market in the US dollar.
But it feels like US dollar sentiment is already really bearish. The dominating macro narrative is clearly USD-negative. Sometimes, in these kinds of situation, herding/group think takes over. That doesn’t mean the consensus is not correct - it can be correct - it only means if it is wrong, the move in the other direction could be large because everyone is positioned the same way.
That is why I think the risk-reward to short US dollar tactically is not great anymore. Of course, I could be wrong about that. But imagine Trump‘s policies show up positively in the data. Or the administration pulls back a bit and behaves more friendly with its allies. The narrative could change quickly.
Yield differentials can widen further, but is that really still bearish US dollar if they have already decoupled? I would think either the US dollar or yield differentials have to play catch-up.
I hope this helps!
That does help, indeed.
Thank you sir!
Good week to you