Making Sense

USDJPY / EURUSD / AUDUSD broadly performed in line with expectations as highlighted in the view earlier  with strong gains in JPY and w e hit our  SL on the GBPUSD  trade.  USDINR is seeing a rounded top technical formation and we may be breaking out lower. Today's close will be important and then the next immediate support is seen as 82.66.  Fed Chair Powell's testimony offered nothing new - Fed believes that they are peak of the tightening cycle.  T he statement reflected a cautious approach to monetary policy, with a recognition of the uncertainty surrounding the economic outlook and a focus on achieving the central bank's inflation target while supporting economic growth and employment and the delicate balance that policymakers must strike. The statement acknowledged that if the economy continues to develop as expected, there may be a need to start easing the current policy stance at some point during the year. The Central Bank would follow a data driv...

Look at the charts below, USD index chart has a H&S formation and also a wedge formation which appears to be breaking out to the downside. 104.78 is the 61.8% Fibo retracement of the larger 107.35 to 100.62 and resistance offered by the trendline joining the Sep 22 top seen at 114.78.  Also the second chart will show a descending triangle in formation on the larger time frame.  We saw AUDUSD earlier breaking out of the wedge formation and EURUSD broke out earlier. I suggested AUDUSD long at 0.6520 and we briefly dipped to 0.6519 lows.  We see a shark pattern in USDJPY and the stops are clear at 151.00 for move lower. GBP continues to be a puzzle on the backdrop of multiple Head and Shoulder pattern but H&S are best traded on breakouts.  I am biased to short USD ahead of the 104.80 resistance.  Tell me your take on the charts?

On the EURUSD Trade initiated on Jan 24,  shorts initiated at 1.0900 level   (update 2)  exit 75% of the position for 100 pips of profit and on the balance 25% we trail our SL to 1.0855 and move our TP Target to 1.0765

 Seeing 1.0970 resistance hold and prefer to exit 50% of the position at current levels of 1.0940 and the SL shifted to 1.0880 for the balance 50% of the position. 

What I'm thinking on EURUSD trade right now? EU CPI data is expected to come in at 3.00% yoy and Core CPI numbers at 3.50% yoy. No further deterioration was evidenced in Mfg PMI figures and better showing in Services PMI saw EURUSD take support at 1.0890 levels. The German – US 10Y spread has been trading in a -1.80% to -1.95% range since mid December in an ascending triangle formation. The markets are pricing in a 150 bps of rate cuts by the ECB which translates to 2.50% rate. In terms of levels, 1.0870 is an important support failing which the uptrend in place since Oct 23 would appear to have broken down. I am biased to go long EURUSD at 1.0880 with stops below 1.0840 for a move higher towards 1.0960/80.

Snapshot Overnight Long end of the curve rose ~ 3.50 bps on 30Y. Comments from Fed Members following Friday's comments from President Williams tried to push back on the market pricing of Interest Rate Cuts. Chicago Fed President Goolsbee told CNBC he was a bit confused by the market's reaction to the latest FOMC meeting/comments. Fed's Mester said markets are a "little bit ahead" of the Fed on rate cuts, says the next phase is not when to reduce rates, even though that's where markets are at, it is about how long policy should remain restrictive (source FT). San Francisco Fed President Daly (FOMC voter), however, said she thinks it's appropriate for the Fed to begin looking ahead to lowering rates in 2024,because of how inflation has improved this year, mindful not to over tighten (WSJ). The Market is pricing in 140 bps of rate cuts by Dec 2024.  DXY consolidated overnight. On the EU side, IFO Expectations, Current Assessment and Business Climate for Germa...

 Earlier Posts  Initiation Update  We now wait for a pull back to ride the seasonality through December.

 Post the Fed Policy announcement (to be covered in a later post), USD is getting sold. EURUSD has so far traded a high of 1.0887. We like holding on to the position  for 1.1000 levels.

EURUSD briefly dipped to 1.07238 in the last week. Price quickly recovered and the pair is taking support at the 1.0765 handle. EURUSD December Seasonality is very positively strong for the EUR. 10/13 years since 2010 have seen EUR gain. Two levels to be EUR long are seen at 1.0765 and 1.0680 with stops below the swing low at 1.0660. 

"Everything should be made as simple as possible but not simpler" - Albert Einstein The HKMA, BoE and Norges Bank kept the interest rate unchanged yesterday following the Fed Reserve. Global Equities surged higher. S&P 500 closed at 4318 (+1.89%). Of the more than 375 S&P 500 companies that have reported earnings to date, about 80% turned in results that beat analyst expectations, according to LSEG. That compares with 67% in a typical quarter.(source WSJ). Long end of the US curve outperformed with yield on US10s dipping to as low as 4.63% , 31 bps lower in 2 days.  Yields on US2s initially dipped to 4.92% but closed near session highs at 4.99%. US2s have been fairly anchored between the 4.90% - 5.25% yields since Sep and break below the 4.90% handle could see further gains accrue. US2s10s spread widened to -34 bps USD index continues the consolidation from October to trade in the 105.50 - 107.00 handle. On the Implied Fed Fund Pricing, Peak Terminal Rates 5.41% Dec 2...

"The first principle is that you must not fool yourself — and you are the easiest person to fool.” - Richard Feyman US equities closed in the green with S&P closing 0.65% higher, having risen 2.30% off Oct 27 lows. The U.S. Treasury quarterly refunding statement announced earlier plans to borrow $776 billion in Q4, $76 billion lower than July estimates assuming an end of Dec cash balance of $ 750 bn. During Jan - Mar 24 Treasury expects to borrow $ 816 bn assuming an end of Dec cash balance of $ 750 bn. The news was in line with expectations. Today, Treasury will announce the borrowing calendar.  Asian equities are off to a better start. Expect range bound moves ahead of the FOMC Rate Decision. Sell of in 10Y JGBs persisted after yesterday's monetary policy decision with yields at 0.976% at the time of writing. BoJ increased the flexibility in the conduct of YCC while retaining the target of 10Y JGBs at 0.00% with upper bound at 1% as reference which implies that 1% is no ...

 On Friday, US equities closed in the red with Dow Jones leading losses of 1.12% while today morning saw Asian equities trade mixed. US equity futures are seen trading in the green. Crude oil prices pulled back from Friday's high thus consolidating the push lower to $ 87.70 levels on Oct 24 for the 4th day between $ 87.70 - $ 91.  US Treasuries are off to a negative weekly start with yields on US2s rising 7 bps to 5.07% (swing high 5.26%) and US10s rising 7 bps to 4.91% (swing high 5.02%) on chatter around BoJ tweaking YCC in tomorrow's meeting. US2s10s steepened with the spread at a high of -12 bps on Monday of last week and traded a low of -30 to close the week at -17 bps. The implied Fed fund pricing shifted lower, I have written in the earlier blogpost the risk reward favors going long the contract as the market pricing for Dec 24 contract finds resistance at the 4.80% - 4.85% level.  Overnight Fed Funds Rate 5.33% Current Pricing Peak terminal rate is priced at 5.41...

US Yields moved higher overnight and equities plummeted over a full percentage point.  US2s high yield of 5.24% US10s high yield of 4.93% US2s10s bear steepened -30.5 bps Fed Fund Futures Jan 31, 2024 5.46% (peak terminal rates) Jun 12, 2024 5.25% (1 cut by mid next year) Dec 18, 2024 4.82% ( 64 bps of cut from peak terminal rates) Fed Fund Futures pricing implied a Fed Fund Rates as low as 3.97% on 08th August 2023 following the last hike of 25 bps on July 26 (Fed Fund rate 5.25% to 5.50%). News of downgrade of small and mid sized banks by Moody's and the Fed speak advocating patience saw significant cuts priced in 2024.  USD index moved higher yesterday after the small reversal seen the day before which was confusing. The Geo - political backdrop also continues to be fluid with the odds of escalation having risen. Fed's Waller said that he expects one more rate hike will be needed while New York Fed President Williams said that he is not yet ready to declare victory over inf...

"Resilience is the capacity to recover quickly from difficulties; toughness. It is the ability to bounce back from adversity and to keep moving forward towards your goals, despite the obstacles in your path" Yesterday, ECB raised rates by 50 bps as inflation continues to be elevated. Euro area Feb inflation is pretty elevated with inflation running at a hot 8.5%. Acc. to the monetary policy statement, the policy decision will be informed by a data dependent approach which will be guided by three factors: 1. The inflation outlook based on incoming economic and financial data (development in the financial markets, financing, financial cost, terms and conditions and the financing of the economy at large) 2. The dynamics of inflation 3. The strength of monetary policy transmission On the current banking sector stress, ECB expressed confidence that t he euro area banking sector is resilient, with strong capital and liquidity positions and limited exposures to the US institutions....

"Optimism isn't a belief that things will get automatically get better, it is a conviction that we can make things better" Hi everyone, so this has been an extremely action packed week both on the domestic data front and global data front. For this article, we will be purely focussing on the EURUSD Trade  recommended earlier to sell at 1.0950 with a SL at 1.1000. Unfortunately, we got stopped out of the trade. What I have realised during the course of trading is to give ourselves some leeway in terms of time for the view to play out. It is also helpful to understand whether a trade is driven by technical considerations or there is a catalyst to drive a pivot in price. If a trade is driven by technical considerations then you wait for the price to consolidate to give you a clear entry and exit point. However, if the trade is driven by a catalyst, then you study the catalyst and dive in.  In this trade, we were driven by technical levels and hypothesis around fundamental fa...

EURUSD is currently trading at 1.0880 steadily climbing for 83 trading days off lows of 0.9534 in Sep 2022 shortly after the peak in natural gas prices and a peak in trade deficit . A steady run of 14.60%.  Look at how Euro Area trade deficit worsened in the aftermath of the Russia - Ukraine war. Do we see an opportunity to sell into the rally yet?  Let's look at two aspects here -  1. What are the interest rates telling you?                Key ECB Rates                Deposit facility     2.00 %                Main refinancing operations 2.50 %                Marginal lending facility   2.75 % Market implied interest rates are pricing in a peak terminal rate of 3.5%. Next 5 policy meeting dates are 02 Feb 23 / 16 Mar 23 / 04 May 23 / 15 Jun 23 and 27 Jul 23 where in t...