Who is the best to predict USD movements? I like Gundlach´s view on this:
“It seems”, Jeff continued, “that the U.S. president wants a weaker dollar.” There’s another characteristically insightful observation for you. After all, there’s no way you could have surmised that without Jeff’s help…
Gundlach continued his latest state-the-obvious-a-thon by noting that if the burgeoning crisis in emerging markets worsens, it “could be a global market problem.” He, like everyone else, doesn’t think this is sustainable:
A weaker dollar would help, he added.
Jeff of course addressed his Treasury short squeeze tweet. Specifically, he’s not convinced that 10Y yields will fall to 2.25% (nobody else is either, considering that’s a full 72bps lower than where we are now), but if you’re wondering how we could “get there”, Gundlach has this to offer:
What could get you there is a monumental short squeeze, because the speculative short positioning in the 10-year is off the charts.
By “off the charts”, he just means it’s sitting near a record. It’s not literally “off the charts” because, well, because here’s a chart of the short in the 10Y:
He used that “monumental” short squeeze theory to reiterate the threat of a curve inversion, which he said could be the result if that position does in fact get squeezed.
As far as why nobody has been squeezed yet, Jeff has a simple answer:
Because it’s not moving.
And while he acknowledges that there is no written rule that says yields have to fall just because specs are short, anything that sparks a rally in Treasurys could start tipping dominos or, as Jeff puts it, “if something’s a catalyst to get a rally, you can just imagine the stampede to cover those shorts”.
Yes, “just imagine” that. If a bunch of people are short, and the market moves against them, they might have to cover. Again, penetrating insight.
For what it’s worth, what Jeff (and everyone else) thinks they’re seeing in that short position might not in fact be what they’re actually seeing. We talked about this on Monday evening, citing several recent notes from Deutsche Bank in “What’s Really Going On With That ‘Massive’ Treasury Short?”
In any event, you get the idea. Jeff is still a bit perturbed at U.S. fiscal policy, he’s sticking with the short squeeze call on Treasurys, he thinks that prospective squeeze could take 10Y yields all the way down to 2.25% on the way to inverting the curve and he thinks the dollar might have peaked for the time being.
all the above is from: