Tuesday, August 18, 2015

Macro's One-way Street

I live on a one-way street that's also a dead end. I'm not sure how I got there.  - Stephen Wright

Despite the incessant clarion calls by the deflationists that the dominant macro trade: long US dollar, long Treasuries and short oil - will extend indefinitely; the bend in the road in Q1 and the familiar patterned streetscapes, continue to point towards an approaching U-turn in this one-way street. 

Long-term Treasuries appear poised for a downside reversal - and are completing a similar descending topping pattern, evident in the two previous multi-year Treasury rallies. We maintain our expectations that the 10-year yield will challenge overhead resistance around 2.65 percent later this year and see the US dollar index following suit lower - which should provide an exit for commodities from the dead end street they've remained in since Q2 2011.