Outlook:

Today we get the Beige Book. Before then, it's factory orders and the API forecast of private sector jobs, likely about 1 million (considering the PMI reports) plus an upward revision of July's 167,000. This comes ahead of Friday's payrolls report.

We expect more attention to what caused the abrupt and strong dollar reversal yesterday. As noted above, we have several possible triggers—ECB chief economist Lane admitting the ECB watches the exchange rate, the extreme overbought condition, hitting the magic number 1.2000, or something else. One thing is certain—it wasn't the release of any of the high-frequency data. If it wasn't Lane, it was positioning.

Gittler at BDSwiss makes a critical point—the ECB is "in a bind, because a stronger exchange rate will only compound the deflationary pressures. We're waiting for ECB President Lagarde to describe the euro's rise as "brutal," which was the code word the-then ECB President Trichet used back in 2004 when EUR/USD started getting too strong for his taste (a then-record 1.2985 at that time). He trotted out that term again in 2007 at above 1.4600."

Gittler goes on to point out that the real effective exchange rate, which is still 7.6% below the launch level in 1999 while the nominal is high. "... it will be some time before the ECB starts protesting the currency. ECB jawboning shouldn't be an obstacle for further EUR strength for some time."

We respectfully disagree. First, if Lane was the trigger—and the international financial press is not covering it—it's more likely an offhand comment than a blatant effort to jawbone, aka verbal intervention. That's not the job of the Chief Economist. Second, big bank traders never, ever look at real effective exchange rates, and they are the price-setters. Therefore, we favor the overbought/oversold version—positioning—and thus the Bloomberg writer who expects a swift and full euro recovery is probably right, even if overlaying today's chart on the 2017 chart is not really valid.

Aside from various economic releases, including Friday's payrolls, we need to heed the biggest event risk in the world today—the US election. Trump is shooting himself in the foot just about every day, the latest being support of the 17-year old Trump supporter (who's not old enough to vote) who crossed a state line to end up shooting and killing two unarmed protesters. He has been charged with 6 criminal counts, including the equivalent of murder. Trump tried to position it as self-defense, which the videos do not support. The law-and-order guy is a hypocrite. Biden was able to seize the moment and point out that Dems do not see rioting/looting as "protest."

Then there is the issue of why Trump has stopped talking about China, at least in the form of roil-the-crowd. The FT has a story on why he has "become conspicuously quiet on trade." Well, it's because he failed to get the results promised in 2016. "The US trade deficit in goods with China in 2016 was $347bn. For 2019, it was only marginally lower at $345bn." The data simply doesn't support any real gains, even as trade advisor Navarro claims the deficit peaked in 2018 at $418bn but fell 18% by $74bn in 2019. "He refused to comment on the fact that the 2019 deficit was barely unchanged from the figure in 2016."

Besides, the Phase One deal is simply not working. China is supposed to buy $200bn more than it did in 2017, but so far it's $48.5bn, vs. a prorated year-to-date target of $100.7bn (Peterson Institute). High-level analysts point out the Trump stance is all emotion and no real policy. As a final blow to the jaw: "A recent Gallup survey found that 57 per cent of respondents disapproved of the way Mr Trump has handled relations with China."

According to The Economist, Trump has a 14% chance of winning. According to 52.7% disapprove of Trump and as of today, Biden has a 7.3% lead over Trump. We always expect the lead to narrow as the election gets closer, and we have 62 days to go. Hardly anyone in the FX commentariat is talking about this gigantic event risk right around the corner, possibly because 60-some days might as well be infinity if you are a trader, but Bloomberg is less shy and writes that "Investors are worried about a delayed or inconclusive election. U.S. rates, credit and equities markets are pricing in elevated risk of those outcomes, JPMorgan said. Rates volatility is about six times normal levels, while it was double normal levels in 2008 and 2012 and triple in 2016. In the latest Grinnell College national poll Joe Biden led President Trump by eight percentage points."

The liberal media is having a good old time speculating whether Trump had a stroke or mini-stroke last November (as impeachment was getting started). It was Trump himself who used those terms, not the press, triggering the idea that he condemned himself. Over the past few days, he has released a storm of false (and ridiculous) assertions, including that a plane loaded with thugs in dark uniforms had been headed to the RNC convention, that "people that you've never heard of" and "people that are in the dark shadows" are controlling Joe Biden, that the Dems will destroy the suburbs with low income housing, that he's the one sending the National Guard to Wisconsin (it was the governor), that the pandemic death toll is exaggerated, etc.

The one that affects us is that the stock market will crash if Biden wins the election. This is folklore. Besides, the stock market is due for a correction anyway, and we can't measure how much it will respond to the end of chaotic, no-policy mismanagement in favor of new management that has some real government experience, even if the cost to the rich and to businesses goes up. Ending a big chunk of uncertainty might well be an offset. Biden is hardly exciting, but Trump is over-exciting and brought a whole bunch of crazies out of their caves, including white supremacists. We'd like to think the American voter will send them back underground. Note to Readers: A week from today on Monday, Sept 7, the US holds the Labor Day holiday and all markets are closed. Many will take Friday off to enlarge the long weekend, including us. We will not publish reports on Friday or Monday.


This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.

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