Where Is The Coherent FX Narrative?
I don’t see much of a coherent narrative in the USD right now. The higher EURUSD narrative from May to August made perfect sense, and the lower EUR/USD in September narrative made a ton of sense too. Now, I don’t really know what the narrative is, or if anything makes sense.
We should see some more USD buying for the month-end, but the downward momentum in the currencies has broken, and there are probably some weak EUR/USD shorts out there at this point. Still, the topside in EUR/USD looks kind of unexciting, too, given the Fed isn’t doing anything new, real rates are stable, gold is still below $1900, and 1.1750 (it was a quadruple bottom back to August 2020) is likely to be important resistance. Look for gold to continue to move on the EUR/USD impulse where a clean break of 1.1750 sends gold above $1900
But leaving room to add on dips to $1860, with a stop around $1840/45. September is seasonally somewhat negative gold, but the yellow metal has now considerably underperformed this month. It should bounce along with better risk sentiment if the covid-19 situation starts to improve. Fingers crossed and good luck
The Yuan
Maybe the yuan is the only coherent place to be?
Short USD/CNH is one of the most widely held positions by fast money accounts, but given the carry/vol dynamics and positive macro backdrop—further supported by China's September PMIs—accounts are in no hurry to trim (and did not really do so even in last week's risk shakeout).
AIT On The Way ECB Style?
ECB President Lagarde, speaking at the ECB Watchers Conference, says that to underpin inflation expectations, the central bank needs to ensure its aim is perceived to be symmetric by the public. The ECB has been relatively quiet on goal symmetry, certainly in comparison to the Fed. Indeed, one of the big problems for the ECB is that prior behavior indicates to ECB watchers and the public that 1.6-1.7% is seen as the upper bound on inflation.
Lagarde went on to say that a makeup strategy can strengthen the capacity of monetary policy to stabilize the economy at the lower bound. With the ECB also conducting a policy review, are these comments the first sign of a Fed-like shift being considered
The Yen
Our retail is still supplying USD/JPY. They were buying on the 104-handle and continue to flip up here.
Fear Driving Fear In Oil
COVID cases are continuing to rise, but that has been a feature as economies began to re-open from late summer. And sure, I understand the sell-off on the New York COVID scare. Still, I think we see more cross-asset contamination into oil where oddly enough, election results uncertainty appears to be driving fears in the oil markets. Oil is falling in London as the dollar picks up a head of steam and the stock market sell-off, which I believe contributes to gnarly correlation into the oil markets.
While I agree on election night, Oil could be a good hedge as it does cover many bases, the simplest to digest, and paints a fundamental narrative of a greener economy's 'left agenda.' Although Biden has proposed new drilling limits for US producers —which one might expect would drive crude prices up —selling oil on the night could provide a proxy for short the oil industry equity (with single stock equity closed as the election results come in). But not now!
Anyway, we bought the dip hoping we have company as generally both large and small traders tend to do here, especially during range-trading moves that tempt shorts into closing out and longs into doubling down. It just requires deep pockets to hold on for a lower shock. Be nimble.