July 24. One US dollar is buying more of EVERYTHING (except AMZN)

–Once again the dollar curve flattened as commodities remain under intense pressure and the USD advances.  [Insert your choice of metal, commodity or currency here…] is making multi year lows.  New low peso.  The Korean Won has been on a one way depreciation since the beginning of May, to a a new low 1164.75. New low Brazilian Real. Copper made multi-year lows just under 238. Gold has cascaded $100/oz just since the end of June.  The currency that has held, pegged in a tight range to the dollar since the middle of March, is the Chinese yuan, perhaps related to bringing credibility to the Asian Infrastructure Investment Bank.  There have been rumors of China selling dollar reserves (treasuries), though it’s not clear from the attached link. http://seekingalpha.com/article/3349915-chinas-holdings-of-u-s-treasuries-without-hyperbole   What is definitely clear is that China’s competitiveness in foreign markets has been chipped away by the decline in other currencies relative to the renminbi.  It would appear, given its economic troubles, as though China has an incentive to depreciate its currency as well…but for now chooses to maintain the façade of economic strength and stability, though China PMI this morning was only 48.2 vs 49.7 expected.  If and when the currency DOES move, it will unleash yet another wave of deflationary pressure over the US.
–Back to US rates… Tens fell another 4.3 bps to 227.7.   All back month eurodollar spreads made new recent lows.  For example, red/gold pack spread fell another 2.125 bps to just 136.5.  Yield curve spreads are at important levels:  2/10 is near a yearly trendline at 157.5 bps; next support should be around 150 (closed 158.3).  5/30 spread has a double top around 155 and is again testing the interceding low of 133.5.  A close below 133 should initially target 120.

–Chicago Fed Nat’l Activity Index was stronger than expected yesterday, as were Jobless Claims.  New Home Sales today.   However, the commodity rout, especially in crude oil, is overwhelming all other data.

Posted on July 24, 2015 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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