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Steno Signals #183 – The Pain Trade is a Weaker USD, While China Could Surprise on the Upside

“How would you go long the USD at the Wellington open?” is a clear hint of the current sentiment. Could the USD peak already today, and where is the money to be found in this environment? Trade suggestions for this week are attached!
2025-02-02

Happy Sunday, everyone, and welcome to our weekly editorial on all things macro.

Everyone I’ve spoken to today has asked me, “How would you go long the USD at the Wellington open?” That, in itself, says a lot about sentiment. I’m currently making my way home from the U.S. after meeting with a ton of investors over the past three days, and I’ve come away with the view that a weaker USD is now the pain trade. Here are my quick takeaways on the topic, but I’ll be back with more during the week as we gain more clarity.

The USD is obviously trading stronger on recent tit-for-tat tariff developments, but I wouldn’t be surprised to see it weaken significantly from here. After all, I did promise to launch an OnlyFans account called “Macro Meets Micro” if EUR/USD trades below parity—arguably the most effective barrier option out there.

On a serious note, here’s why I believe the pain trade is now a weaker USD:

  • A strong USD is ultimately bad for subsequent economic surprises. The tariff doom-loop is more of a drag on growth than a driver of inflation. Following the 2017–2018 playbook, price impacts will likely be absorbed by FX effects and margin compression, leaving PCE goods inflation less affected than feared.
  • Trade flow distortions and the USD’s impact on earnings will weigh on growth. This could temporarily pause the growth momentum that has been accelerating since November. As a result, we’re likely to see long bond yields move lower, leading to a flatter yield curve, which in turn should drag USD/JPY lower.

This might end up being a classic “buy the rumor, sell the fact” event—unless things escalate further. Those rushing to make a quick buck on the USD at the open could very well end up regretting it.

Chart 1a: The Tariff Doom-Loop 

“How would you go long the USD at the Wellington open?” is a clear hint of the current sentiment. Could the USD peak already today, and where is the money to be found in this environment? Trade suggestions for this week are attached!

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