EUR
FX remains stagnant within established ranges as we anticipate a slew of news later this month, resulting in a flow-driven lethargy. There seems to be a mix of Hassett noise and term premium influencing the market, though it's challenging to interpret. During my client meetings yesterday, it became apparent that there is a general lack of positioning, with opinions on the dollar and euro being largely divided. Carry trades benefited the most, yet there is minimal desire to take further action at these levels as we approach year-end, although hints of a potential chase could emerge in late December or early January if circumstances align favorably.
Tactical trading continues in a landscape lacking clear direction; I purchased some USD/JPY on the dip as previously mentioned and relieved that the euro didn’t breach its resistance, as I started feeling a bit short. I am also beginning to position in EUR/SEK again as it drifts higher while remaining short on EUR/PLN and have exited USDCAD short-term longs.
Yesterday, the euro appeared to have some support; however, our flows or any news did not indicate a specific catalyst. Examining the short-term chart, we see multiple tops in the 1.1650-70 range which held, thus providing no compelling reason to chase. If I had to choose, I believe that the likely dovish appointment of the Fed Chair may lead the market to react asymmetrically to a weak payroll report in a few weeks, especially if that range breaks on a general dollar decline, compelling action. Until then, I’ll be trying to ignore the intraday fluctuations and concentrate on the fact that we are not straying significantly from current levels, resulting in no strong conviction.
GBP
Regarding GBP, Richard Hughes, the head of the OBR, has resigned following the budget day debacle, and the market is now pondering whether Reeves will follow suit. Starmer appeared quite unfazed as he dismissed criticisms yesterday, and I would be surprised if mere political tactics were behind this fiscal mess. I believe GBP will recover and begin to rise over the next few weeks as the media tires of pursuing these relatively straightforward questions. All tracked segments sold GBP yesterday, but the volumes were minimal, so I’m remaining neutral for the time being. EUR/GBP is holding at 0.8750/60 and 0.8865/75, with the first support level in cable set at 1.3150, while both the 50-day (1.3270) and 200-day (1.3318) moving averages will be closely monitored. This week’s data calendar is light, with only the final PMIs and the REC survey, and Mann (a hawk) is scheduled to speak tomorrow.
JPY
We did extend through 155, but I must admit I was a bit too ambitious with the levels I was hoping to buy on the dip. It was somewhat strange yesterday that the USD was declining, seemingly due to the Hassett probability shift, while US yields did not follow suit and overlooked the weaker ISM report. Subsequently, the USD improved from its lowest levels, marking a significant rebound at the crucial 1.1650 level in EURUSD. The market continues to be tactical. Despite the discussions I encountered about ‘hawkish Ueda’ yesterday, JPY ended the day as the most sold currency for SHF and DHF (both at 2z), and there is still 20bp factored into the BoJ. My perspective remains unchanged; everything coming from Japan points towards a weaker JPY, and the main risk factors for the USD are the Fed chair and NFP. It can be argued that the former is now priced in, so I suggest maintaining a long position in USDJPY. The next resistance levels are 156.60/70 for USDJPY, with 158 above that, while 153.00/30 serves as the major support level.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!