On October 30, I published "Stronger Dollar Themes To Continue" for my subscribers, which gave a unique approach to why the dollar is rallying even tho traders foresee Fed policy getting dovish: credit spreads.
"Now, when comparing credit spreads to the financial crisis it doesn't seem to be "that big." Combine record U.S. corporate debt, a highly distorted high-yield market and slowing economy, and you got the makings of a credit crisis. The move this year is not only noticeable, but inflects from the previous couple years of lower-lows."
"The rate of change in spreads is remarkable, actually. Just look at the move in spreads and the monthly close of the trade-weighted dollar index (major FX)."
As credit conditions breakdown and high-yield/investment grade spreads widen, the dollar continues to march higher as a representation of the dollar shortage.
Take a look of what the HYG+LQD basket (inverted scale) does when the dollar strengthens:
Now take a broader look:
Near-term quantitative ranges are dotted, while longer-term levels are solid. By Q1-19, the DXY will likely be triple digits if not sooner.
"Now, when comparing credit spreads to the financial crisis it doesn't seem to be "that big." Combine record U.S. corporate debt, a highly distorted high-yield market and slowing economy, and you got the makings of a credit crisis. The move this year is not only noticeable, but inflects from the previous couple years of lower-lows."
"The rate of change in spreads is remarkable, actually. Just look at the move in spreads and the monthly close of the trade-weighted dollar index (major FX)."
As credit conditions breakdown and high-yield/investment grade spreads widen, the dollar continues to march higher as a representation of the dollar shortage.
Take a look of what the HYG+LQD basket (inverted scale) does when the dollar strengthens:
Now take a broader look:
Near-term quantitative ranges are dotted, while longer-term levels are solid. By Q1-19, the DXY will likely be triple digits if not sooner.
