A REAL BUMMER - I am out on the road today so going to get right to it. I was really disappointed with Monday's price action. I was looking for some good downside follow through in US equities, and although we saw some initial weakness, the market was once again very well bid on the dip and rallied back into the close. Still, stocks did manage a fresh daily lower top and lower low on Monday, and so long as we hold below Friday's high, I will be looking for a resumption of declines and for a pickup in bearish momentum. Look for another topside failure and break back below Monday's low to confirm and accelerate declines. Inability to do so, will open the door for a break to fresh record highs. On the currency side, USD/JPY and EUR/CHF both remained well offered into Tuesday, and this helps to strengthen the bearish case. It now feels like a lot of what hangs in the balance will be revealed in Tuesday price action.
THORN AT MY SIDE - Elsewhere, the New Zealand Dollar has been a real thorn at my side. I have been short NZD/USD, and for the most part out of the money over the past several weeks. Although its commodity cousins, the Australian and Canadian Dollars have retreated a good deal from their respective cyclical highs against the buck over the past several months, Kiwi still tracks near longer-term cyclical highs against the US Dollar. The aggressive tightening bias over at the RBNZ has unquestionably been the driver of this relative outperformance, and market participants starved for yield have flocked into Kiwi. However, I believe that recent rate hikes will start to negatively impact the economy, and this in conjunction with a currency that is dragging on the export sector, will be enough to slow down the central bank. The RBNZ has already expressed serious concern over the exchange rate and has said that it does not believe the rate is sustainable at current levels. I also believe the RBNZ hasn't done a good job of taking external global risks into account and has been far to0 aggressive with its tightening bias. I don't think we will see a rate hike in June, and I would be on the lookout for a major reversal in the New Zealand Dollar. Look for a break and daily close back below 0.8650 to confirm.