As we have been writing for weeks, the USD crash has yet to "feed" over to the pro cyclical currencies. In mid November we outlined the biggest trading implication going forward was that the DXY weakness was about to spill over to more exotic countries such as Brazil, we wrote;
"Global demand should be lifting all boats, commodities exporting countries as well,and BRL is a big one in this space….If the vaccine news start spilling over for real, laggards such as Brazil ETF, EWZ might get the second leg going."
CS notes this accurately, the DXY short is big, but in defensive crosses. The chart shows clearly the huge difference in the short "distribution" this time compared to last time we had such big dollar shorts, 2011.
Frequent readers know TME's logic on the relative long EM logic, but more importantly, the long in "exotic" places such as Brazil that has outperformed most assets lately. People still do not understand that the biggest EM ETF, EEM, actually is mostly a play on Chinese tech and not "traditional" EM pro cyclical plays, chart 2.
If you believe in the DXY collapse spreading further and impacting "real" EM going forward, Brazil is one of those places to be in. The EWZ vs SPY ratio has popped higher, but the recent pop is just a blip on the longer term chart (chat 3).
Chart 4 is showing the clear out performance by Brazil over EEM. Yes, as we wrote above;
"if If the vaccine news start spilling over for real, laggards such as Brazil ETF, EWZ might get the second leg going."