Yields and equities bounces, dollar cools
I saw this tweet on the weekend and it summarized one view on the market:
I sympathize with taking a bit off the table here but this really looks like a short squeeze. Short the dollar and bonds were a consensus Fed-driven trade that got too crowded. It was a great party but the Fed turned down the music and some people went home.
Is the party over?
I don't think it is. Rates are still ultra-low and Bullard said that he wants to hike at the end of 2022 if he sees 2.5-3.0% inflation next year. That's a high bar and isn't as hawkish as the market reaction lately indicates.
What bothers me is the chart of AUD/USD:
That's such an ugly look. It's below the 200-day moving average and that looks like a head-and-shoulders top targeting 0.7000.
Right now though, I can't piece that kind of decline together. Maybe if the delta variant really starts to grind?
So on net, I like buying dips in risk assets but this is no time to be making big bets because the fundamentals and technicals don't align.
