Graphic Content – August; Seasonality – the Trump card for the US Dollar?
8th August 2017
The start of 2017 saw near unprecedented speculative positioning linked to global ‘reflation’, Trumpmania meant that nowhere was this more pronounced than in bearish US Treasury positioning, closely followed by US Dollar bullishness. We wrote about how this made little sense at the time ‘A tough start for 2017 consensus trades’.
There has been a major unwind of many of these reflation trades over the past six months. Market positioning has completely flipped in some cases, most notably in the US, where a combination of data disappointment and policy paralysis has encouraged investors to speculate on US Treasury yields falling and continued weakness in the US Dollar.
If history is any guide, disappointing US economic data may be about to surprise to the upside.
The chart below demonstrates the strong seasonal distortion to US data in recent years, where data has tended to disappoint expectations through Q2 and early Q3 before bouncing back strongly through the end of the year. We have overlaid these data surprises with 10 Year US Treasury Yields (rebased).
If the US seasonal distortions persist – and 2017 is sticking to script so far – then markets look very vulnerable to a squeeze, but this time in the other direction.
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