Trade war is the one and only thing moving the US Dollar

Outlook:

The market was happy to seize on any negative trade war story to buy dollars and then even happier to seize on good news about the trade war as a reason to unload a too-big dollar position. We have seen see-sawing, zig-zagging and stair-stepping for over a week now. There's no point in consulting yield differentials or comparable PMIs or any of our other usually reliable indicators—the dollar depends on one thing and one thing only—that trade war.

As we customarily say about trading on payrolls, it's a mug's game to trade on the trade war. For one thing, there is tremendous bias in the reporting sources. Who told the South China Post "no progress"? It could be sources with a political axe to grind (or a long dollar position). The Washington sources used by Bloomberg cannot be considered any more objective and truthful. Secondly, the perception can change on a dime. We can get a report saying "Deal is done!" and bet the ranch on shorting the dollar, only to find out a half hour later that the deal is not done or it's done but it's bad.

To speculate in the FX market on the China trade deal is gambling, not least because your stops will be blown and your exit prices can be at catastrophic losses. When the probability of a catastrophic loss is this high, it's not informed trading. It's wild guessing and wishful thinking. Advisors like us have to show a buy or sell signal, but nobody says you have to trade. Now is a good time to keep your powder dry. Today we get Sept CPI, with 1.8% expected for the headline (from 1.7%) and 2.4% for the core, the same as last time. It's fairly helpful that energy costs are tame. It's likely the CPI numbers have no effect at all on much of anything, least of all the Fed and its ideas about a cut at the Oct 30 policy meeting.

Politics: A stunning poll from Fox News shows 51% favor not only impeachment of Trump, but also his removal from office. This is the highest combined voter judgement so far and stunning because Fox has been behaving as a propaganda machine for Trump, finding excuses for every misdeed. Sub-groups within the Trump base, like white men without a college degree, have switched to favoring impeachment removal by large numbers in a short while (up 8 points in a week) and evangelicals (5%).

Fox reports "By a 66-25 percent margin, voters say it is generally inappropriate for Trump to ask foreign leaders to investigate political rivals." A majority (51%) say the Trump administration is more corrupt than previous ones. And voters don't buy the conspiracy theory ("witchhunt")—48% say Trump is getting what he deserves vs. 37% who think people are out to get him.

As for acting in self-interest, 55% see Trump's behavior that way vs. 39% who imagine he is putting the country first.

This doesn't mean the polls accurately reflect what will happen. It might mean that by the time the Senate comes to vote as a jury on charges, the Republicans will not be united in acquittal.

And that was before fresh misdeeds started coming to light, including former Sec State Tillerson saying Trump wanted to do things that are illegal and had to be restrained. Tillerson and chief of staff Kelly had been guardrails. The Bloomberg story came out last evening and has been picked up by other news agencies, not least because it's based on three White House sources, any of which might be Tillerson or Kelly.

We'd like to think these poll outcomes reflect that the US citizen really does place a high value on the rule of law. The voter agrees no one is above the law, as Trump asserts, including Trump, and it's likely Trump has been breaking the law. The liberal press believes the case of Trump breaking the law is already obvious, but now it's the job of the House to demonstrate it with the utmost clarity. One report last evening had it that the first article of impeachment will be obstruction of justice.

Note to Readers: Next Monday, Oct 14, is a national holiday in the US, Columbus Day, and technically the federal government and banks are closed, although many banks stay open for trading, including FX. The NYSE and Nasdaq are open on Veterans Day and Columbus Day (but closed on Good Friday, go figure). The Chicago Mercantile Exchange will be open, so FX futures will trade. Bottom line—no holiday for us, but watch out for reduced activity.

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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