Trade Troubles

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The trade deal: the gift that keeps on giving.

The August trade deficit came in at $67.1 billion, the largest since 2006 – partly a reflection of the pandemic but exacerbated by a 9.3% collapse in the value of the DXY since its March highs.

At the same time, oil and gas prices have spiked sharply higher since reaching our downside targets on Oct 2. So, bond traders can be forgiven for bidding up the 10Y to nearly 0.80%.If the past is any indication, DXY has much further to go and trade deficits will continue to rise – hardly the outcome the White House promised amid the destructive trade talks in 2018. Remember when the market rallied on every rumored breakthrough?

No worries, though, as VIX “coincidentally” collapsed by 10% in a matter of seconds, thus preserving a positive open.continued for members…The rise in the 10Y, of course… …means a widening in the 2s10s – which has now reached the danger zone.In other words, maintaining the CL/RB rallies beyond these prices (time to sell again)… …would result in a very serious 2s10s breakout and ZN breakdown.Adding to the algos’ troubles: VIX’s 10/20 cross yesterday……which starts the countdown to another leg down for equities. As we discussed yesterday, USDJPY completed a bullish 10/20 cross.But, the past 3 such crosses have been head fakes (the white arrows below) and merely preceded big drops. And, this latest rally has still merely backtested a broken fan line from the Mar lows – no evidence it will break out. It hasn’t even produced a new high since the 10/20 cross.

As we’ve discussed many times, it’s merely trying to pin the NKD above its .886 Fib.

EURUSD is bouncing, the major contributor to DXY’s demise. But, I see a big downdraft coming in DXY as rates collapse between now and the end of the year. If stocks participate in the meltdown, DXY will subsequently pop much higher as in Mar.FWIW, gold and silver are holding on and even making a little headway towards a legit breakout following their backtests of strong support. If GC can just break back above 1923.70… more later…

UPDATE: 3:35 PM

Extending my thanks to President Trump who apparently felt that my bearish forecast being correct was more important than bailing out millions of down-on-their-luck voters.

Seriously, though, who’s advising this guy? Is he really trying to alienate people? ES has a single TL standing in the way of another 145 points downside.