The speculative market dove head-first into US dollar longs in the past month and is now rushing to the exits.
It started in Europe when Draghi was less dovish than expected. Look at how offside the market has been positioning it self for the past couple weeks. Bets on a weak euro have been jumping but the euro has held its ground. All the new short positions since late February are now underwater. It’s the same in JPY and some others.
The looming non-farm payrolls report tomorrow is the real fear and the catalyst for the breakdown. The employment component of the ISM non-manufacturing report, which is my favorite NFP predictor, was at 50.1 — barely in growth mode and the lowest since July. That points to the possibility of near-zero job creation. If that’s the case expect a week of talking about the Fed increasing QE.
US growth has been a massive disappointment this year. Many economists were heading into the year looking for +3% growth but every day sub-2% growth is looking more likely. If the sequester isn’t sorted out, something closer to 1.5% is a possibility. Hopefully, some bad data points give Washington the slap in the face it needs, because something needs to be done because the talk about a ‘self-inflicted wound’ is gaining traction.
The good news for traders is that this is a panic move and there will be a time to fade it. It’s just not yet.
