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Is the USD poised to trend lower again?

USDJPY which has led the USD move against the major currencies has bounced from mid 102 to nearly 111, a rise of more than 8%. With US bond yields now stabilising at currently higher levels, the impetus for further USD strength may be waning.

The recovery of the USD from recent lows were mainly triggered by the rise in long term US bond yields. As the rebound in the US economy, fear of inflation and of the Federal Reserve hiking rates sooner than expected pushed the US 10 year bond yields from a low of 0.50% to around 1.70%, position reduction by speculators who were massively short the USD caused the currency to strengthen from the lows since the start of the year.

USDJPY which has led the USD move against the major currencies has bounced from mid 102 to nearly 111, a rise of more than 8%. With US bond yields now stabilising at currently higher levels, the impetus for further USD strength may be waning.

Should USDJPY start to weaken, it will be a sign that the next leg of the longer term weaker USD trend is about to begin.


Do Not Be Tempted

Today’s society places a low time preference for wealth creation. The instant gratification culture has conditioned us to wanting things fast as we can get a lot of things instantly due to the digitalisation of almost every aspect of our lives. In the grand scheme of investing and trading, a low time preference attitude is the surest way to financial ruin as people will use excessive leverage to make up for time and this usually leads to financial ruin (i.e. Bill Hwang of Archegos Capital).

Currently, there are two things that are “inevitable” in markets, 1. Volatility 2. Government and Central Bank Money Printing.

With volatility, trading with excessive leverage makes it a game of Russian roulette, with excessive leverage being the gun and volatility spikes, the bullet.

The incessant money printing makes it inevitable that asset prices will rise in terms of fiat currency eventually. However, the path may not be orderly and a steady rise. As such, it is imperative to not be tempted to take short cuts and it is critical to size your positions appropriately to last the journey.


Federal Reserve Minutes: The Fed is likely to stick to the message that Fed Chair Powell has sticking to — patience with the expected rise in inflation later this year that is expected to be transitory and change of policy will not be considered until full employment is achieved and actual inflation prints are above 2% for a while.


1. Currencies : Keep short USD and long NZD, & CNH. USDCNH is now back below 6.55, and if it stays below this level, it is likely that it will go back within the 6.40–6.55 trading range. NZD continues to stay resilient above 0.7000. Stay patient.

2. Commodities : Silver — Neutral for now.

Key risks: Spikes in US bond yields may lead to a stronger USD and weaken risk sentiment. .

3. Equities :

Equity Index: : Long Nasdaq futures. The positive price action continues. Stay long.

Single Stocks: As expected, the market is starting the new quarter on a positive note, certain sectors which have been trending higher will resume their strong rallies. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

Key risks : Higher US yields and inflation fears are the key risks.


As of New York Close 6 Apr 2021,


  • US 10-yr Bond yield decreased 6 basis points to 1.67%. The 2-yr yield decreased 1 basis point to 0.16%. The U.S. Dollar Index fell -0.3% to 92.30. WTI crude futures rebounded +1.1%, or $0.65, to $59.34/bbl after sliding -4% yesterday.
  • Australia’s official interest rate will remain at 0.10% (expected) after the Reserve Bank of Australia (RBA) handed down its official verdict on Tuesday afternoon. The RBA is looking to achieve an unemployment rate of 4% or less to trigger higher wages and lift inflation to between 2% and 3% Currently, unemployment is at 5.8% after a bigger-than-expected fall in February, while inflation is at 0.9% . It’s struggled to bring inflation to its target for around six years.
  • S&P 500 eked out an intraday record high on Tuesday, but it closed lower by -0.1% in a lacklustre session. The Nasdaq (-0.1%), Dow Jones Industrial Average (-0.3%), and Russell 2000 (-0.3%) accompanied the benchmark index in negative territory with small declines.
  • Most sectors in the S&P 500 traded within their flat lines throughout the session amid no new macro catalysts, suggesting a bit of consolidation activity. The utilities (+0.5%), consumer discretionary (+0.3%), and consumer staples (+0.3%) sectors outperformed in positive territory. The information technology (-0.4%) and health care (-0.4%) sectors were influential laggards.
  • U.S. President Joe Biden on Tuesday directed states to widen the vaccine eligibility to people 18 or older by April 19, two weeks earlier than the May 1 deadline he previously announced, but warned that with new virus variants spreading “we’re still in a life-and-death race” with the coronavirus. No COVID-19 vaccine is authorized yet for children under 16, although testing is underway.


‘A biological Fukushima’: Brazil COVID-19 deaths on track to pass worst of U.S. wave

Notable Snippet: Brazil’s brutal surge in COVID-19 deaths will soon surpass the worst of a record January wave in the United States, scientists forecast, with fatalities climbing for the first time above 4,000 in a day on Tuesday as the outbreak overwhelms hospitals. While the president has shifted his tone on immunizations, touting vaccines he had recently disdained, the far-right former army captain continues to battle in the courts against state and municipal restrictions on economic activity.

THEMATIC CONTEXT: “Countries should not rest on their laurels because viruses do not take days off. As countries with successful vaccine drives continue to open up while those who are slow to inoculate and are nonchalant about safety practices fall back into the doldrums, we will see a bifurcation in economic activity even across developed world economies and we suspect this will show up in FX rates. As such we continue to be more constructive towards Asia Pacific currencies like the CNH & SGD.” — 20th Mar 2021

Clear link between AstraZeneca vaccine and rare blood clots in brain, EMA official tells paper

Notable Snippet: There is a link between AstraZeneca’s COVID-19 vaccine and very rare blood clots in the brain but the possible causes are still unknown, a senior official for the European Medicines Agency (EMA) said in an interview published on Tuesday. However, the EMA later said in a statement that its review of the vaccine was ongoing and it expected to announce its findings on Wednesday or Thursday. An AstraZeneca spokesman declined to comment on the matter. The EMA has repeatedly said the benefits of the AstraZeneca shot outweigh the risks as it investigates 44 reports of an extremely rare brain clotting ailment known as cerebral venous sinus thrombosis (CVST) out of 9.2 million people in the European Economic Area who have received the vaccine.

THEMATIC CONTEXT: “Vaccine efficacy is a key development to monitor. Societies around the world have a bifurcation of sorts where some countries are still experiencing the full brunt of Covid-19 while others are having Covid-19 fatigue and just want to get on with their lives. Vaccine is the key to level the field with herd immunity and markets are clinging onto this hope. If severe allergic reactions halt the process, this will weigh on risk sentiment, what we need to know now is if these allergic reactions are within the scope of expectations.” — 7th Jan 2021

Yellen says more work needed to shore up weaknesses revealed by pandemic

Notable Snippet: Yellen on Tuesday told leaders of the IMF and the World Bank that the Biden Administration had decided to “go big” with its COVID-19 response to avert the negative “scarring” impact of long-lasting unemployment, adding that she hoped the U.S. economy would return to full employment next year. “We are going to be careful to learn the lessons of the (global) financial crisis, which is: ‘Don’t withdraw support too quickly,’” Yellen said, “And we would encourage all those developed countries that have the capacity… to continue to support a global recovery for the sake of the growth in the entire global economy.”

Yellen, who met earlier on Tuesday with the Coalition of Finance Ministers for Climate Action, also underscored the Biden Administration’s commitment to tackling climate change at home and ensuring the needed “transfer of resources” to enable similar actions in developing countries. World Bank President David Malpass said the bank was finalizing a new climate change action plan that includes a big increase in spending, building on record climate financing over the past two years.

THEMATIC CONTEXT: “Stay the course, the flood of money will arrive. US “true interest expense” (Gross Treasury spending + the Pay-As-You-Go portions of US Entitlements, which is just the “interest expense” on Social Security & Medicare obligations) is ~110% of tax receipts. 1. The Fed will have to print more money to pay the US government’s “true interest expense”, or; 2. The US government will have to default on either Entitlement spending, USTs, or both (i.e., the US government would have to greatly reduce monthly Social Security/Medicare/UST interest payments.) Most people do not realize yet exactly how trapped the Fed actually is. As more investors realize this, we expect Bitcoin to continue melting up, gold prices to begin matching what appears to be a melt-up in physical gold demand, and equity prices to respond well. We also suspect the USD will begin to break down.” — 26th Feb 2020




Phan Vee Leung
CIO & Founder, TrackRecord

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