Comeback kid

The dollar is dead, long live the dollar. Consensus remains bearish on the USD, yet the DXY is breaking above the key 100 level as we write. We outlined our bullish dollar logic a few weeks ago when the negative trend line was taken out. A close here would break the range in place since May, and the vacuum above that range could get violent. Latest note on the dollar and the euro here.

Source: LSEG Workspace

 

The oil connection

The last time oil traded around these levels the euro was near 1.02. We are not calling for a crash, but zooming out shows the euro–oil relationship is rather strong. A closure of the Strait of Hormuz would create a structural divergence favoring the USD while exposing the Eurozone to stagflation risks. Higher energy costs would increase pressure on the ECB and could force a hawkish pivot sooner than expected.

Source: LSEG Workspace

 

THE mistake

Hartnett Friday poetry: From August 2007 to July 2008, oil surged from roughly $70 to $140 per barrel as subprime tremors spread (BNP, Northern Rock, Bear Stearns). Oil peaked on July 3, 2008, the same day the ECB hiked rates by 25bps, a move widely seen as one of the biggest policy mistakes in modern central banking. Just 74 days later Lehman collapsed and the GFC unfolded, with crude plunging to around $40 as credit stress trumped the oil shock and the ECB was forced to cut rates by 325bps. Today, the probability of an ECB rate hike by June 2026 is around 75%, while Wall Street is increasingly drawing parallels to the 2007–2008 setup.

Source: BofA

 

Still stuck

SPX remains stuck inside the "eternal" range. Betting on break outs, either way, has been a costly strategy.

Source: LSEG Workspace

 

Will it MOVE SPX?

The gap between equities and bond volatility has widened again. Historically, sharp surges in MOVE tend to make equity markets uncomfortable. More here.

Source: LSEG Workspace

 

Korea flows

It looks like Korean speculators have stopped chasing the KOSPI and are back to chasing BTC. There has been a strong connection between the two.

Source: LSEG Workspace

 

The BTC/gold ratio

Zooming out, the BTC/gold ratio is trading inside a massive range. The latest bounce has occurred from the lower end of that range, leaving plenty of upside if the move continues. Latest BTC note here.

Source: LSEG Workspace

 

Before you get too bearish

Shorting lows

We have leaned bearish in recent weeks, but positioning data is starting to flash some warning signs. Investors appear to be pressing shorts aggressively right at the lower end of the range, historically not the most comfortable place to press bearish bets.

The big short

"US-listed ETF shorts on the Prime book increased +10% yesterday: the 2nd largest 1-day increase on Goldman's record."

Source: GS

 

Elevated

"...short exposure in Macro Products (Index + ETF combined) now stands at the highest level since Sep '22 and is approaching 5-year highs in the 97th percentile." (GS)

Source: GS

 

AAII: 4th week in a row

The bull-bear spread has now been negative (meaning there are more bears than bulls) for the fourth week in a row. The 12.1 point drop this week was the biggest WoW decline since the week of 11/13, and the spread is also the lowest since that same week.

Source: Bespoke

 

Friendly reminders

Friendly reminder number 1: VIX tends to peak and SPY trough in mid March, on average. Last year it came in early April.

Friendly reminder number 2: Currently VIX is up ~80% and SPY is down 2.33% YTD. More here.

Source: @equity clock