USD hurt by combination of Trump arguments and mixed US data

Weariness may be settling in. The Commitments of Trader s report on Friday shows speculators cut their long US dollar positions to a four-month low. Reuters reports net longs were cut for ‘the 6th straight week to $14.99 billion in the week ended Feb. 14, down from $17.07 billion the previous week. The latest dollar positioning was the lowest since the week ended Oct. 11.

"The dollar has underperformed so far this year, falling 1.2 percent against a basket of currencies, after gains of 3.6 percent in 2016. The dollar has been hurt by a combination of comments from the Trump administration about preference for a weaker dollar as well as mixed U.S. economic data suggesting growth in the world's largest economy may not be as strong as many initially thought."

Well, no. We don't know where Reuters got the idea that US growth is disappointing. On Friday, the Atlanta Fed released the latest GDPNow for Q1 at 2.4% from 2.2% on Feb 15. The revision is based on the Census Bureau forecast for first-quarter real residential investment growth at 7.8% from 3.9%. We get the next update on Monday, Feb 27.

Some analysts say that as soon as the Fed's hiking plans become clear, the dollar rally will resume. Another boost could come from the long-awaited tax reform plan. But maybe not—the bond gang is not yet on board. Until we get a meaningful rise in the 10-year yield, the bond boys are voting the skeptics' point of view.

It should be obvious that bonds are not reflecting the latest most likely scenario—rising inflation, rate hikes, stock market retreat. In fact, the 10-year yield rose after the election but then stalled. The real rate is negative (nominal minus inflation). The FT's Authers writes "The bond market is priced on the assumption that there is reason to question how much stimulus the administration will deliver, and hence a real need to question whether the Fed will need to raise rates as much as it says it will. With inflation and wage growth rising from very low levels, and plentiful signs of optimism and economic strength, both viewpoints seem questionable. This is particularly so given that Janet Yellen of the Federal Reserve this week spoke about as forthrightly as she could have done in favour of raising rates sooner and faster than many expect."

As an Oppenheimer analyst puts it, we have a "disconnect." For the foreseeable future, investing rests on these two variables—the tax reform plan and the Fed response. "If we get a big stimulus and the Fed stays dovish, the market is priced correctly. This is possible but unlikely. In the event of a big stimulus and a strong Fed response — possibly the single most likely outcome — we can expect bond yields to move a lot higher. Stocks would be at some risk. And if Mr Trump fails to deliver as much as hoped in tax cuts (unlikely but possible), while the Fed presses on with three or four rate rises this year, investors in both stocks and bonds should brace to lose money."

But wait, it gets worse. Lies are going to infect our data. The Trump gang is going to re-jigger the "export" category to make growth look better. It's also using an assumption in the budget plans that calls for growth at 3-3.5% over the next decade. And Congressional Republicans are going along with this fiction. As Krugman points out, it's not impossible—the Reagan years had 3.4% and the Clinton years, 3.7%. "But a repeat performance is unlikely."

The baby boomers that fueled that rise are now retiring and the demographic shift cuts growth by at least 1%. Also, the slack faced by both Reagan and Clinton is not present now and the starting point does matter. "The only way we could have a growth miracle now would be a huge takeoff in productivity — output per worker-hour. This could, of course, happen: maybe driverless flying cars will arrive en masse. But it's hardly something one should assume for a baseline projection. And it's certainly not something one should count on as a result of conservative economic policies."

We are not the only one offended and frightened by Trump's lies. Remember that Bush Two removed the cost of the Iraq war from the budget. The only one who complained at the time was Joseph Stiglitz, but the grievance never gained traction. This time the lies will, apparently, permeate a bigger swathe of data. The problem is that at no point does the public wake up. The public seems to have a never-ending appetite for fairy stories that suit ideology. Here's a novel idea—the Dems become the party of more balanced budgets. The Republicans talk that game but never actually deliver. If the public doesn't catch on, why not?

The Trump Administration has a credibility problem on other fronts, too. The FT reports VP Pence assured European leaders the White House "is committed to strong cooperation with the EU and Nato." Pence said the "US partnership with the EU is ‘steadfast and enduring, with the two sides sharing the ‘same heritage, values, and purpose' to promote freedom, democracy and the rule of law."

Oh, yeah? Does Pence speak for Trump, who has insulted the Europeans in several ways and called for NATO to be abolished? Granted, Trump fired Flynn for lying to Pence, but that doesn't necessarily mean Pence has any real authority. A vice-president is like the second royal prince—the spare. The only other VP function is to break a tie in Congress.

On the political front, Trump held a campaign rally for unclear reasons because the campaign is over. He told a number of old and new lies. Reporters and analysts are struggling to discover what the "constant" communication between Trump campaign staffers and Russians may mean. Some say it is outright, black-letter treason and will become the biggest presidential scandal of all time, surpassing Nixon/Watergate.

Another criticism is Trump's attacks on the media for "fake" news when it's really factually correct news. The first institution destroyed by an autocrat/dictator is the press, viz. Putin. The First Amendment of the Constitution states there can be no government action that abridges freedom of speech or infringes on the freedom of the press. Ah, but putting the press out of business is not "infringing." Some worry Trump could kill the NYT and Washington Post the way Peter Thiel killed Gawker. Paranoia? Hard to tell.

Our own theory is that Trump is cozying up to Russia to make a deal to take down North Korea, which kills two birds with one stone. Bombing N. Korea back to the Stone Age rids the planet of one giant risk and also gives China a black eye for failing to control its client state.

Wall Street in Advance guru Lynn write that "the most remarkable facet of the current market is the utter complacency with which the Street is handling, or dare I say, cherry picking which Trump personality it chooses to ignore and which to notice. ... he shoots off his mouth as if he were in a locker room, rather than the world stage."

On Presidents Day, it's fitting to note George Washington is famous for saying "I cannot tell a lie."

Trump is the exact opposite and has a hard time telling the truth. According to Politifact, only about 30% of what Trump says is true, mostly true or half true. See the table below. Yesterday Trump talked about something awful happening in Sweden on Friday, which has taken a lot of refugees. But like Kellyanne Conway's "Bowling Green massacre," nothing happened in Sweden of Friday. Former Prime Minister Bildt tweeted "Sweden? Terror attack? What has he been smoking? Questions abound."

The Guardian reports "Swedes reacted with surprise and confusion to the president's claim about an unspecified incident that he said took place on Friday night. On Sunday, the Swedish embassy in Washington asked the US state department for an explanation." We'd like to see it, too. Later Trump said he was referring to a Fox News report.

Politifact offers a truth meter:

Bottom line, we believe the COT report is showing the loss of confidence in Trump's America. To re-peat: dollar longs are at a four-month low. Reuters reports net longs were cut for ‘the 6th straight week to $14.99 billion in the week ended Feb. 14, down from $17.07 billion the previous week. The latest dollar positioning was the lowest since the week ended Oct. 11." Here we go. It might take LePen plus 5-Star to overcome the emerging anti-dollar sentiment.

Note to Readers: Thank you for voting for me "Best Analysis" at FXStreet. You can see my video talk along with the other winners. The award page is here: Blog post. And FXStreet added a badge to the profile: Barbara Rockefeller.

Currency	Spot	Current Position	Signal Date	Signal Strength	Signal Rate	Gain/Loss
USD/JPY	113.17	SHORT USD	02/17/17	WEAK	112.86	-0.27%
GBP/USD	1.2470	LONG GBP	01/24/17	WEAK	1.2451	0.15%
EUR/USD	1.0620	SHORT EURO	02/10/17	WEAK	1.0643	0.22%
EUR/JPY	120.19	SHORT EURO	02/03/17	WEAK	121.56	1.13%
EUR/GBP	0.8517	SHORT EURO	02/16/17	WEAK	0.8490	-0.32%
USD/CHF	1.0025	SHORT USD	02/20/17	NEW*WEAK	1.0025	0.00%
USD/CAD	1.3104	SHORT USD	01/05/17	WEAK	1.3253	1.12%
NZD/USD	0.7182	LONG NZD	02/10/17	STRONG	0.7185	0.04%
AUD/USD	0.7672	LONG AUD	01/05/17	WEAK	0.7343	4.48%
AUD/JPY	86.82	LONG AUD	02/09/17	WEAK	85.92	1.05%
USD/MXN	20.5143	SHORT USD	01/31/17	WEAK	20.8108	1.42%