Charts I’m Watching: May 5, 2015

The worst trade deficit miss ever

…is what you get when you ramp your currency to unrealistic levels — proof, again, that in currency wars not everybody can win.  As we detailed last month, the lower yen/higher dollar/lower euro/cheaper oil/stable inflation/stable interest rates/higher stocks scheme will only work so long as the three or four institutional investors that still give a damn about fundamentals don’t panic.

Negative GDP readings have been known to incite a panic.  And, the “higher dollar is better” meme will be a tougher sell going forward.

2015-05-05 DX daily 0615 USDJPY is tumbling, of course.

2015-05-05 USDJPY daily 0615Yet, futures are only off 5 points (after being off 8 pts earlier.)  Because, as we’ve noted countless times before, a weakening dollar (kneejerk reaction to the trade deficit report) strengthens CL — which is a key driver in today’s algo-driven “markets.”

2015-05-05 CL daily 0615The other consideration, of course, is the impact such data might have on Q1 GDP, and the likelihood that a negative print would compel the FOMC to jump in and “save the economy” with QE4.

Since the Fed engineered the dollar ramp — thus exacerbating the trade deficit and GDP weakness — rolling out QE4 would be akin to a rattlesnake administering antivenom.

Keep an eye on USDJPY, which TPTB tried to pitch us as breaking out yesterday.  It won’t — at least not for a while.  A nice reversal, though, is going to ramp up oil and delay DX’s inevitable rebound.  No way this won’t present a headwind for stocks today…

Our analog is intact; our targets are intact.  Our “markets” are most definitely not.

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