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Could this be the start of a sell-off in the USD?

The down move in the USD yesterday was pretty interesting.

The broad USD has been trading in a relatively narrow range since late last year and the currency market has been pretty subdued compared to the stock and crypto markets. However, the down move in the USD yesterday was pretty interesting.

The USD weakened against almost every currency, even currencies with “bad” fundamentals such as the Turkish Lira (TRY) and the South African Rand (ZAR). Despite the weak Chinese stock market (-15% since mid June), the CNH looks set to strengthen beyond levels seen since the middle of June.

Given the price action and the news flow (dovish Fed, infrastructure bill closer to being passed), it seems that the USD could be poised for another leg lower some time soon.


China Ahead Of The US Nuclear Energy Race

The China National Nuclear Corporation has started building its first small modular reactor (SMR) on the island province of Hainan, at its Changjiang nuclear power plant (at bottom of map). It will be China’s own Linglong One design, it will be about 125 MW, it will take about 5 years to build, and it will generate about a billion kWh/year.

CONTEXT: “China understands (at least from a Macro policy perspective) the difference between Baseload Power (Traditional Energy and Nuclear) and Transient Power (Hydro, Solar, Wind). Their policies are well designed around baseload power sustainability as massive growth requires energy stability and the transition towards clean energy must not tamper with this stability. The only way to do that is to continue building out Traditional Energy plants, while concurrently constructing Nuclear plants to ensure a smooth transition when the time comes. As we have mentioned before, China and India are backstopping two of our biggest trades, being positioned for a Traditional Energy supply deficit and a Nuclear renaissance.” — 20th July 2021

It’s interesting to note that China is ahead of the US in developing Small Modular Nuclear Reactors. This reiterates our point made previously that China understands the importance of baseload power transition. We remain extremely optimistic about the prospects of baseload power as one is in deficit (traditional energy) and the other will see exploding demand in the decade ahead (coupled with scarcity at this point in time).


PCE Price Index, the Fed’s preferred measure of inflation, will be particularly important as any softening of inflation measures (which the market is now conditioned to accept upside surprises) will highly likely set back expectations of any tapering or rate hikes from the Fed. Hence, soft numbers will be good for risk assets.


1. Currencies:

Keep short USD and long NZD, & CNH. After triggering stops above 6.50–6.51, USDCNH has broken back below and is now looking decidedly weak.

Key resistance/support levels — USDCNH 6.53–54. Sell on rallies given the soggy price action.

2. Commodities: Uranium & Energy — Stay the course. .

Key risks: Spread of the delta strain and also the rout in Chinese stocks due to clampdowns from the central government are the key drivers of risk sentiment for now.

3. Equities:

Equity Index: Long Nasdaq futures. Stay the course.. Stay long and patient. Approach of support levels at 13950–14000 will be a good opportunity to add to longs.

Single Stocks: Every dip is a chance to get involved. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

Key risks : Spread of the delta strain, geopolitical worries and China’s crackdown on various sectors will dictate the market risk sentiment for now.


Market movements as of New York Close 29 Jul 2021
  • The advance Q2 GDP report reflected the rebound effort in the U.S. economy from the pandemic. It showed real GDP increasing at an annual — and robust — rate of 6.5% (expected 8.5%), helped by an 11.8% increase in personal spending. The GDP Chain Deflator increased 6.0% (expected 5.4%) following a 4.3% increase in the first quarter. A standout from the report is the strength seen in personal spending, as consumers were flush with cash and pent-up demand. Another key takeaway is that prices continue to creep higher, although the Fed continues to assert that the high inflation is likely to be transitory.
  • Initial claims for the week ending July 24 decreased by 24,000 to 400,000 (expected 375,000) while continuing claims for the week ending July 17 increased by 7,000 to 3.269 million. The elevated level of initial claims, which are still well above pre-pandemic levels, is a contributing factor to the Fed’s view that the labour market still has a ways to go on the recovery road.
  • The U.S. Dollar Index decreased -0.5% to 91.90. AUD and NZD, reliant on world and Chinese economic growth, rose +0.33% and +0.7% respectively, as risk sentiment continues to improve. The USD move, though small in magnitude, is quite a significant move given recent days of tight ranges.
  • U.S. Treasuries settled mixed and little changed in a tight-ranged session. The 2-yr yield remained unchanged at 0.20% while the 10-yr yield increased 2 basis points to 1.28%.
  • S&P 500 (+0.4%), Dow Jones Industrial Average (+0.4%), Nasdaq increased just +0.2% while the Russell 2000 outperformed with a +0.7% gain.
  • There were some negatives, though. Facebook (FB 358.32, -14.96, -4.0%), PayPal (PYPL 283.17, -18.81, -6.2%), and Merck (MRK 76.93, -1.40, -1.8%) issued cautious outlooks following their earnings reports. (AMZN 3599.92, -30.40, -0.8%) traded lower ahead of its earnings report after the close. Robinhood (HOOD 34.82, -3.18, -8.4%) dropped -8% in its public debut.
  • Tesla (TSLA 677.35, +30.37, +4.7%) was a notable standout, rising 5% after the stock was double-upgraded to Buy from Sell at DZ Bank. Qualcomm (QCOM 150.99, +8.55, +6.0%) rose strongly after crushing earnings expectations. Smartphone chip sales are Qualcomm’s largest segment, and the company benefited greatly from the rapid adoption of new 5G-ready devices this year.
  • Amazon shares are heading lower in late trading Thursday (-7.44%) after the e-commerce and cloud computing giant reported mixed results for the June quarter, with better-than-expected profits but sales that fell shy of Wall Street estimates. The miss reflects a shortfall in Amazon’s e-commerce business, which suffered a sharp deceleration from recent growth trends. The e-commerce slowdown was partially offset by better-than-expected results in the company’s cloud computing, advertising, and third-party seller segments.


Biden calls for big budget bill to include immigration

Notable Snippet: U.S. President Joe Biden, who has called for providing a pathway to citizenship for so-called Dreamer immigrants, said on Thursday that a big budget bill being written by Democrats in Congress should tackle immigration.

Biden, who made the comment to reporters at the White House, said on Sunday he was uncertain whether a pathway to citizenship for immigrants protected from deportation under the Deferred Action for Childhood Arrivals (DACA) program could be included in the bill, which Democrats plan to pass without Republican support.

THEMATIC CONTEXT: “When push comes to shove, we believe that the US government will do the right thing and they are on the edge of unleashing unprecedented fiscal money. We have been saying that Biden’s best work has to be accomplished from now to midterm elections and each day later just coils the springs of explosive growth as he will have to go faster and more aggressively within a shorter period of time. Don’t miss the forest for the trees at this point in the cycle.” — 21st July 2021

Biden pushes cash reward to get vaccinated, new rules for federal workers

Notable Snippet: President Joe Biden on Thursday urged local governments to pay people to get vaccinated against COVID-19, and set new rules requiring federal workers to provide proof of vaccination or face regular testing, mask mandates and travel restrictions. The measures are Biden’s latest attempt to spur reluctant Americans to get vaccinated as the Delta variant of the coronavirus surges nationwide, infecting unvaccinated people in particular.

Government employees who do not show they have been vaccinated will be subject to weekly or twice-weekly COVID-19 tests and restrictions on official travel.

THEMATIC CONTEXT: “Measures taken by countries on a Macro level will impact already sensitive social sentiment and we suspect that as Delta variant spreads, this will be the worst time for central banks and governments to talk about talking about tightening credit conditions. In fact, we have been banging the table that the entire credit tightening situation is a farce and merely showboating. The time to unveil the actual show is here and we suspect that assets will resume its trajectory in time.” — 19th July 2021

Sydney under strict new lockdown rules as cases soar

Notable Snippet: Millions in Sydney began their harshest lockdown since the pandemic began on Friday as COVID-19 cases spiked to record levels in Australia’s largest city with state and national leaders set to meet to discuss the country’s reopening plans. With Sydney, the capital of New South Wales state, struggling under record surge of cases, officials toughened curbs across eight local council areas, where most new infections were being reported, and sought the military’s help to enforce lockdown rules.

THEMATIC CONTEXT: “Is this a sign of things to come? We suspect that the Delta variant will prove to be a challenge in the coming weeks, although most developed world countries at this point in time are fighting this from a better vantage point due to vaccine efficacy and better response policies. This is a development to monitor closely and any changes will affect Cyclicals and Energy to a reasonable degree.” — 19th July 2021




Phan Vee Leung
CIO & Founder, TrackRecord

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