Exercise-Discipline

Exercise-Discipline

Great time to scale in to USD longs Dovish Fed hike won't stop term premia returning to historical norms. This is bullish for USD and bearish for USTs.

Exercise-Discipline

Over the next 48 hours, we may see large moves in FX. At present we have a compression of volatility (see currency strength chart). This suggests that volatility will increase over the next day or so. The trade here is: Trade in the direction of price action and hold the trade. A trend following strategy will work better than a mean reversion approach.

Exercise-Discipline

Massive head and shoulders pattern on monthly chart. We may test all time lows at 1.05.

Exercise-Discipline

Fundamentals support this in the short term. However in the longer term, EURJPY is a buy.

Exercise-Discipline

EURUSD has rallied to 1.07 on the back of strong USD data and a mildly hawkish Draghi. Fundamentally this should be trading at 1.05 or below. Even if Draghi raises rates, the rate differential between EU and USA will keep rising. Short this baby and add to position if it gets to 1.0750, 1.08.

Exercise-Discipline Updated 

Prices are at 50% retracement of upleg from late Feb. Speculative / commercial positions are within normal limits, i.e. not overstretched. Hedge gold longs with USD longs against EUR, JPY, NZD, CAD.

Exercise-Discipline Updated 

Bullish divergence. Some political risk premium is being priced in to EUR, However fundamentals for EUR remain strong vs JPY. Furthermore, I believe the recent JPY strength is due to Japanese profit repatriation and fiscal year end flows, rather than true risk aversion. This is a GREAT trade for the long term. I may hold this until we see 140. I will scale in...

Exercise-Discipline Updated 

Risk sentiment is supported. NZD has highest interest rate in G10.

Exercise-Discipline Updated 

Short - rejection from 0.76 round number and 38.2% retracement of the down leg. Fundamentally there is monetary policy divergence between RBA and Fed which supports this trade. Hedge with AUDJPY longs from current levels.

Exercise-Discipline

Buy gold at spot. Add at key levels: 1205, 1180, 1150. Hedge with shorts on AUDUSD, NZDUSD, GBPUSD (since these are risk-on trades). I think this will be the perfect way to play 2017 - long USD, long gold.

Exercise-Discipline Updated 

10 year yields. 2.30% level has been very supportive. Breakout of the wedge will mean uptrend will continue. Fundamentally this is supported by higher term premia being demanded, and Chinese flight capital leaving the UST market. I'm long USD and will add to my positions if 10 year yields really start to move a lot higher.

Exercise-Discipline Updated 

The case for USDJPY longs is strong: 1) Strong support area 2) Strong correlation with 10Y yield differential (shown in white). This differential should increase dramatically in the next few weeks/months. 3) Speculative interest is no longer at its highest levels. 4) Other risk assets (e.g. equities) remain well supported. The market can remain irrational for...

Exercise-Discipline Updated 

Fundamental idea that term premia should revert back to historic norms supports this trade.

Exercise-Discipline

But this time the risk reward is worth it. BTCUSD is approaching all time highs again. But a stronger USD and capital controls may mean downside in the short term. China and governments don't like BTC at these levels - challenges fiat currency. Stop loss above all time highs makes sense. Target $850 - where it was a few weeks ago ;)

Exercise-Discipline Updated 

Fundamentally, looking at global equities, data from the US, Fedspeak and Yellen's comments, USD should be trading much higher. Why isn't it? 1) JPY-positive flows before the end of the Japanese fiscal year 2) 'Uncertainty' of the Trump administration 3) Profit taking at 115.00 - including option defending and strong sell interest However, I view this as...

Exercise-Discipline

Uptrend should resume after the 61.8% retracement and bullish divergence. Fundamentally a normal mean reversion of term premium is occurring. This should also support the USD in the medium-term and keep the uptrend intact for 2017. However the move may be choppy because of extreme long positioning.

Exercise-Discipline

ECB will begin tightening at some point - given the rising Euro area inflation. Current account surplus of the Eurozone is also strong versus Japan. Japan cannot tighten conditions at this point. Even if they do - JPY may not strengthen as it will lose its value as a funding currency. Furthermore, all other central banks will be tightening at that point anyway.

Exercise-Discipline

Where the S&P 500 goes, AUDJPY usually follows. Right now there's a divergence between global equities and AUDJPY. AUDJPY is undervalued - fair value is around 100. Unless the S&P 500 breaks down (unlikely in the medium term given that everyone is calling for a stock market crash)... AUDJPY should continue to move upwards, closing the divergence with the S&P 500.