In a piece on CNBC, one of the most watched bond investors, Jeff Gundlach warns that there are record levels of short positions in Treasury futures, which could result in a short-cover rally, causing prices to spike higher and yields to fall to recent lows. If the short squeeze does take place, price action could be aggressive. In his comments, Mr Gundlach mentioned that the long US dollar positions are at record levels as well. It makes sense, with US GDP at 4 percent, the highest since 2014, and the robust and expanding US labor market with jobs being created at a 200,000 hire pace per month on average – for the past three months. And of course with inflation starting to show some signs of support. Shorting bonds and Long USDJPY in our view is a great trade.
We are more focused on the USDJPY rate, as our target range, the 109.50 to 112.50 parameters are holding for now, but that 112.50 resistance could test and break in September. Classiarius does not give trade ideas, we just point out 3 month trends and key inflection points.
Back to Mr Gundlach, CEO of DoubeLine Capital. He has traded the US Treasury, debt market, skillfully over years and is one of the most respected bond investors on the planet. He mentioned that the US S&P 500 is back at its highs “on diminishing momentum” while making his comments on bonds and the US dollar/FX. Note that the 10-year was at 2.84 while the 30-year bond was trading at 2.99 percent.
With the Fed meetings and rate hike expectations in September, we expect increased volatility in USDJPY, US Treasury Bonds and even in cryptocurrencies (SEC ruling on ETFs). More on these markets in the coming week.