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fx:macro Summary Changes 2023_04_22

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"08.04.23

"21.04.23

***** MACRO *****

>>BULL<<

▶︎ Good data out of China this week

▶︎ No sign of exuberance so far

▶︎ FX volatility is still pretty low

▶︎ FX volatility is still pretty low and falling

▶︎ Equity volatility is looking calm with VIX and VVIX both low and skew flatter

▶︎ COT data for the ES is very bullish

▶︎ MOVE is still high

>>BEAR<<

▶︎JPY and CHF are outperforming, risk-on currencies are underperforming

▶︎ Risk-on currencies aren't performing

▶︎ Asian and EM PMIs are weaker again

▶︎ Most Asian and EM PMIs are weaker again

▶︎ Sector dispersion is huge with Tech being the only sector that actually performs

▶︎ Defensive sector rotation

▶︎ Market breadth isn't looking healthy

▶︎ Re-steepening of the yield curve after a curve inversion... this has stalled, though

▶︎ Treasury futures COT positioning is bullish

▶︎ Treasury futures COT positioning and positioning changes are bullish

▶︎ VVIX is diverging from VIX, there is demand for OTM puts, VIX/VVIX correlation signal has triggered

▶︎ Industrial metals aren't performing

▶︎ OPEC cut is a sign of weak oil demand, CL term structure and COT positioning changes are bearish too

▶︎ Credit spreads are still relatively wide

▶︎ Huge flows into money market funds

>>SUMMARY<<

The banking crisis seems to be behind us and stocks are still holding up. It's mostly Tech and a few stocks, though, and breadth is already seeing some signs of weakness under the hood. Volatility is still low but aside from that, thing's aren't looking good: currency performance, metals, crude oil...

It's tough to make sense of it all right now: the economy is holding up pretty well, no one is overly excited about where stocks are trading, positioning is clearly bullish. But then: sector rotation is defensive, breadth is bad, volatility is flashing a warning, and all of it when the SPX is near a resistance level.

***** USD *****

>>BULL<<

▶︎ COT positioning is still bullish

▶︎ Improving PMI on the heatmap

▶︎ Positive seasonality

>>BEAR<<

▶︎ GDPNow for Q1 has halved in the last two weeks (but it's Q2 now...)

▶︎ Nothing hawkish from Fed speakers

▶︎ CESI has dropped

▶︎ CESI has dropped, CSII is lower too

▶︎ USD didn't like weaker growth and jobs data this week

▶︎ Market pricing for the Fed Funds Rate is still more or less in line with what the Fed has been telegraphing but the implied path of rate cuts is worrisome

▶︎ Dovish shift in the language of the FOMC statement despite the the FFR path being projected a bit higher and inflation projections higher too

▶︎ 2y and 10y yields are moving lower in tandem

▶︎ Lower real yields and lower breakevens aren't bullish USD

▶︎ Declining consumer inflation expectations

>>SUMMARY<<

The dollar is at key support levels vs. several other currencies but I don't see why we should get a sustained move higher unless it's a panic of some sort. This week, more weak data is expected and I doubt that the FOMC Minutes will provide some hawkish impetus.

It's hard to find good arguments for the dollar at the moment because it's sitting in the middle of the dollar smile: the US isn't outperforming on the one side and there's no major crisis that would push us to the other side. And the incoming data next week probably won't be changing that. I don't see a good reason to change the bias here.

***** EUR *****

>>BULL<<

▶︎ The ECB Minutes read hawkish with references to wage growth and second-round effects

▶︎ Hawks in the GC are still pushing for higher rates

▶︎ PMI commentary was very positive

▶︎ Inherent strength

▶︎ Core CPI is sticky

▶︎ CESI has flattened out

>>BEAR<<

▶︎ CESI is heading lower

▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving

▶︎ COT positioning is at a bearish extreme

▶︎ Bearish seasonality

>>SUMMARY<<

I still don't like it much because of the positioning issue but the ECB is still comparatively hawkish, the European banks don't have to deal with massive deposit flight, China reopening is still happening and EUR has been trading well, so there are definitely things going for it, and I'll be taking short-term trades from the long side.

The positioning extreme isn't holding it back, and what I wrote two weeks ago still remains mostly in place: comparatively hawkish ECB, sticky core inflation, China reopening. The long is way too crowded to take a longer-term position at these levels but short-term trades should continue to work well.

***** GBP *****

>>BULL<<

▶︎ Inherent strength

▶︎ CESI is going strong

▶︎ Yields are outperforming

▶︎ Hot CPI this week

>>BEAR<<

▶︎ Nothing hawkish from the BoE, Tenreyro talked about rate cuts again

▶︎ PMI has worsened

▶︎ PMIs have worsened

▶︎ COT positioning is now bearish 6B as well

▶︎ PMI is worse

▶︎ Bearish seasonality

>>SUMMARY<<

There's not much positive about it from a fundamental perspective except that it has been surprising to the upside again and again.

I'm changing the bias to neutral because it's been surprising again and again, and now the incoming data is better and CPI surprised. But GBP also has a positioning issue now.

***** AUD *****

>>BULL<<

▶︎ Risk reversals are bullish

▶︎ Commentary in this week's PMI sounded extremely upbeat

>>BEAR<<

▶︎ RBA pivot with dovish guidance this week, Lowe also dovish

▶︎ It's just not trading well despite the positive data from China

▶︎ CESI is near lows and not picking up

▶︎ Bearish seasonality

▶︎ Bearish seasonality and sentiment

▶︎ Bullish sentiment

>>SUMMARY<<

Unchanged from two weeks ago: Not much to like about it at the moment: weak fundamentals, dovish central bank, overall market sentiment.

The economy is doing well, China is doing well but AUD isn't performing. No reason to change the bias now.

***** NZD *****

>>BULL<<

▶︎ Another 50 bps hike but guidance has softened

▶︎ 2s10s are bear flattening

▶︎ Risk reversals are bullish

>>BEAR<<

▶︎ Bullish sentiment

▶︎ It's inherently weak

▶︎ CPI way below expectations this week

▶︎ CESI is dropping, the CESI spread AUD-NZD is rising

>>SUMMARY<<

We've had a 50 bps hike from the RBNZ with a bit of a dovish undertone and the market didn't like it, so no change to the short bias.

At this point, I like it even less than AUD because of how it traded since the 50 bps hike at the beginning of the month and because of the CESI spread moving against it.

***** CAD *****

>>BULL<<

▶︎ COT positioning is bullish, Dealers are at multi-year long levels

▶︎ COT positioning is bullish, Dealers are near multi-year long levels

▶︎ 25-delta risk reversal is bullish

>>BEAR<<

▶︎ Nothing hawkish from the BOC

▶︎ Everything about crude oil looks bearish (COT positioning changes, term structure, OPEC cut)

▶︎ Crude oil has shown weakness

▶︎ PMI weakening on the heatmap

▶︎ Bullish sentiment

>>SUMMARY<<

Unchanged from two weeks ago: There's no good reason to go long CAD from a fundamental point of view at this point. Shorting it is tough because of the extreme in COT positioning.

I'll leave that in: There's no good reason to go long CAD from a fundamental point of view at this point. Shorting it is tough because of the extreme in COT positioning.

***** CHF *****

>>BULL<<

▶︎ The SNB is still sounding hawkish

▶︎ Yields are outperforming

▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF two FX pairs with the most bulls

▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF are still the two FX pairs with the most bulls

>>BEAR<<

▶︎ CESI has dropped sharply

▶︎ CPI missed to the downside this week

>>SUMMARY<<

This hasn't changed either during the last two weeks: CPI might have come down but the SNB is still hawkish and they're probably still buying CHF. Plus, it has the benefit of being a risk-off currency.

Not much has changed since two weeks ago, so I still like it because of the SNB and because it's performing in this weird market. Not seeing any excessive positioning yet but the moves have been a bit of a stretch.

***** JPY *****

>>BULL<<

▶︎ It's still the prime safe-haven currency

▶︎ Tokyo Core CPI still >3% and it's not deflating quickly any more

▶︎ The shunto wage negotiations have led to the highest wage increases in 30 years (just below 4%)

▶︎ Tokyo Core CPI still >3%

▶︎ PMI is improving

>>BEAR<<

▶︎ Still the most dovish central bank out there

▶︎ Bullish sentiment

>>SUMMARY<<

No reason to change the bias at this point. Headlines about possible policy normalization are popping up again but implied vol is still low. "

The BOJ has done pretty much everything to telegraph they won't make any rapid changes but then that's probably their only option. A surprise move is a possibility, and if and how that will come is essentially unpredictable. The US banking crisis is over, I don't see why we need a flight to safety, so I'm changing the bias to neutral."

Saved diffs

Original text

Open file

"08.04.23
***** MACRO *****
     >>BULL<<
▶︎ No sign of exuberance so far
▶︎ FX volatility is still pretty low
▶︎ Equity volatility is looking calm with VIX and VVIX both low and skew flatter
▶︎ MOVE is still high

>>BEAR<<
▶︎JPY and CHF are outperforming, risk-on currencies are underperforming
▶︎ Asian and EM PMIs are weaker again
▶︎ Sector dispersion is huge with Tech being the only sector that actually performs
▶︎ Market breadth isn't looking healthy
▶︎ Re-steepening of the yield curve after a curve inversion... this has stalled, though
▶︎ Treasury futures COT positioning and positioning changes are bullish
▶︎ Industrial metals aren't performing
▶︎ OPEC cut is a sign of weak oil demand, CL term structure and COT positioning changes are bearish too
▶︎ Credit spreads are still relatively wide
▶︎ Huge flows into money market funds
     >>SUMMARY<<
The banking crisis seems to be behind us and stocks are still holding up. It's mostly Tech and a few stocks, though, and breadth is already seeing some signs of weakness under the hood. Volatility is still low but aside from that, thing's aren't looking good: currency performance, metals, crude oil...

***** USD *****
     >>BULL<<
▶︎ COT positioning is still bullish
▶︎ Improving PMI on the heatmap

>>BEAR<<
▶︎ GDPNow for Q1 has halved in the last two weeks (but it's Q2 now...)
▶︎ CESI has dropped
▶︎ USD didn't like weaker growth and jobs data this week
▶︎ Dovish shift in the language of the FOMC statement despite the the FFR path being projected a bit higher and inflation projections higher too
▶︎ 2y and 10y yields are moving lower in tandem
▶︎ Lower real yields and lower breakevens aren't bullish USD
▶︎ Declining consumer inflation expectations
     >>SUMMARY<<
The dollar is at key support levels vs. several other currencies but I don't see why we should get a sustained move higher unless it's a panic of some sort. This week, more weak data is expected and I doubt that the FOMC Minutes will provide some hawkish impetus.

***** EUR *****
     >>BULL<<
▶︎ Inherent strength
▶︎ Core CPI is sticky
▶︎ CESI has flattened out
     >>BEAR<<
▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving
▶︎ COT positioning is at a bearish extreme
     >>SUMMARY<<
I still don't like it much because of the positioning issue but the ECB is still comparatively hawkish, the European banks don't have to deal with massive deposit flight, China reopening is still happening and EUR has been trading well, so there are definitely things going for it, and I'll be taking short-term trades from the long side.

***** GBP *****
     >>BULL<<
▶︎ Inherent strength
     >>BEAR<<
▶︎ Nothing hawkish from the BoE, Tenreyro talked about rate cuts again
▶︎ PMIs have worsened
▶︎ COT positioning is now bearish 6B as well
▶︎ PMI is worse
     >>SUMMARY<<
There's not much positive about it from a fundamental perspective except that it has been surprising to the upside again and again.

***** AUD *****
     >>BULL<<
▶︎ Risk reversals are bullish
     >>BEAR<<
▶︎ RBA pivot with dovish guidance this week, Lowe also dovish
▶︎ CESI is near lows and not picking up
▶︎ Bearish seasonality and sentiment
     >>SUMMARY<<
Unchanged from two weeks ago: Not much to like about it at the moment: weak fundamentals, dovish central bank, overall market sentiment.

***** NZD *****
     >>BULL<<
▶︎ Another 50 bps hike but guidance has softened
▶︎ 2s10s are bear flattening
▶︎ Risk reversals are bullish
     >>BEAR<<
▶︎ Bullish sentiment
▶︎ It's inherently weak
     >>SUMMARY<<
We've had a 50 bps hike from the RBNZ with a bit of a dovish undertone and the market didn't like it, so no change to the short bias.

***** CAD *****
     >>BULL<<
▶︎ COT positioning is bullish, Dealers are at multi-year long levels
▶︎ 25-delta risk reversal is bullish
     >>BEAR<<
▶︎ Nothing hawkish from the BOC
▶︎ Everything about crude oil looks bearish (COT positioning changes, term structure, OPEC cut)
▶︎ PMI weakening on the heatmap
     >>SUMMARY<<
Unchanged from two weeks ago: There's no good reason to go long CAD from a fundamental point of view at this point. Shorting it is tough because of the extreme in COT positioning.

***** CHF *****
     >>BULL<<
▶︎ The SNB is still sounding hawkish
▶︎ Yields are outperforming
▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF two FX pairs with the most bulls
     >>BEAR<<
▶︎ CESI has dropped sharply
▶︎ CPI missed to the downside this week
     >>SUMMARY<<
This hasn't changed either during the last two weeks: CPI might have come down but the SNB is still hawkish and they're probably still buying CHF. Plus, it has the benefit of being a risk-off currency.

***** JPY *****
     >>BULL<<
▶︎ It's still the prime safe-haven currency
▶︎ The shunto wage negotiations have led to the highest wage increases in 30 years (just below 4%)
▶︎ Tokyo Core CPI still >3%
▶︎ PMI is improving
     >>BEAR<<
▶︎ Still the most dovish central bank out there
▶︎ Bullish sentiment
     >>SUMMARY<<
No reason to change the bias at this point. Headlines about possible policy normalization are popping up again but implied vol is still low. "

Changed text

Open file

"21.04.23
***** MACRO *****
     >>BULL<<
▶︎ Good data out of China this week
▶︎ No sign of exuberance so far
▶︎ FX volatility is still pretty low and falling
▶︎ COT data for the ES is very bullish
     >>BEAR<<
▶︎ Risk-on currencies aren't performing
▶︎ Most Asian and EM PMIs are weaker again
▶︎ Defensive sector rotation
▶︎ Market breadth isn't looking healthy
▶︎ Treasury futures COT positioning is bullish
▶︎ VVIX is diverging from VIX, there is demand for OTM puts, VIX/VVIX correlation signal has triggered
▶︎ Industrial metals aren't performing
     >>SUMMARY<<
It's tough to make sense of it all right now: the economy is holding up pretty well, no one is overly excited about where stocks are trading, positioning is clearly bullish. But then: sector rotation is defensive, breadth is bad, volatility is flashing a warning, and all of it when the SPX is near a resistance level.

***** USD *****
     >>BULL<<
▶︎ COT positioning is still bullish
▶︎ Positive seasonality
     >>BEAR<<
▶︎ Nothing hawkish from Fed speakers
▶︎ CESI has dropped, CSII is lower too
▶︎ Market pricing for the Fed Funds Rate is still more or less in line with what the Fed has been telegraphing but the implied path of rate cuts is worrisome
     >>SUMMARY<<
It's hard to find good arguments for the dollar at the moment because it's sitting in the middle of the dollar smile: the US isn't outperforming on the one side and there's no major crisis that would push us to the other side. And the incoming data next week probably won't be changing that. I don't see a good reason to change the bias here.

***** EUR *****
     >>BULL<<
▶︎ The ECB Minutes read hawkish with references to wage growth and second-round effects
▶︎ Hawks in the GC are still pushing for higher rates
▶︎ PMI commentary was very positive
▶︎ Inherent strength
     >>BEAR<<
▶︎ CESI is heading lower
▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving
▶︎ COT positioning is at a bearish extreme
▶︎ Bearish seasonality
     >>SUMMARY<<
The positioning extreme isn't holding it back, and what I wrote two weeks ago still remains mostly in place: comparatively hawkish ECB, sticky core inflation, China reopening. The long is way too crowded to take a longer-term position at these levels but short-term trades should continue to work well.

***** GBP *****
     >>BULL<<
▶︎ Inherent strength
▶︎ CESI is going strong
▶︎ Yields are outperforming
▶︎ Hot CPI this week
     >>BEAR<<
▶︎ PMI has worsened
▶︎ COT positioning is now bearish 6B as well
▶︎ Bearish seasonality
     >>SUMMARY<<
I'm changing the bias to neutral because it's been surprising again and again, and now the incoming data is better and CPI surprised. But GBP also has a positioning issue now.

***** AUD *****
     >>BULL<<
▶︎ Commentary in this week's PMI sounded extremely upbeat
     >>BEAR<<
▶︎ It's just not trading well despite the positive data from China
▶︎ Bearish seasonality
▶︎ Bullish sentiment
     >>SUMMARY<<
The economy is doing well, China is doing well but AUD isn't performing. No reason to change the bias now.

***** NZD *****
     >>BULL<<

>>BEAR<<
▶︎ Bullish sentiment
▶︎ It's inherently weak
▶︎ CPI way below expectations this week
▶︎ CESI is dropping, the CESI spread AUD-NZD is rising
     >>SUMMARY<<
At this point, I like it even less than AUD because of how it traded since the 50 bps hike at the beginning of the month and because of the CESI spread moving against it.

***** CAD *****
     >>BULL<<
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
▶︎ 25-delta risk reversal is bullish
     >>BEAR<<
▶︎ Nothing hawkish from the BOC
▶︎ Crude oil has shown weakness
▶︎ PMI weakening on the heatmap
▶︎ Bullish sentiment
     >>SUMMARY<<
I'll leave that in: There's no good reason to go long CAD from a fundamental point of view at this point. Shorting it is tough because of the extreme in COT positioning.

***** CHF *****
     >>BULL<<
▶︎ The SNB is still sounding hawkish
▶︎ Yields are outperforming
▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF are still the two FX pairs with the most bulls
     >>BEAR<<

>>SUMMARY<<
Not much has changed since two weeks ago, so I still like it because of the SNB and because it's performing in this weird market. Not seeing any excessive positioning yet but the moves have been a bit of a stretch.

***** JPY *****
     >>BULL<<
▶︎ Tokyo Core CPI still >3% and it's not deflating quickly any more
     >>BEAR<<
▶︎ Still the most dovish central bank out there
▶︎ Bullish sentiment
     >>SUMMARY<<
The BOJ has done pretty much everything to telegraph they won't make any rapid changes but then that's probably their only option. A surprise move is a possibility, and if and how that will come is essentially unpredictable. The US banking crisis is over, I don't see why we need a flight to safety, so I'm changing the bias to neutral."