No Rest for FX - Edition 1

UPDATE: I will provide an update on how the views played out at the end of each week: 

EURUSD: EUR came down weaker as we had dovish ECB and hawkishness from the Fed. General dollar rampage throughout the week so actually held up ok under the circumstances. 

GBPUSD: Correct call to be short-term bullish. Did play the 1.34 - 1.35 once and made some decent profits there. SELL EURGBP idea wasn't aggressive enough. We are now below 0.84

EURCHF: Not performed well but I continue to be bullish longer-term. 

USDJPY: Ended basically flat. 1.15 held like a charm and was a perfect short opportunity. 

Gold: OK I got this one wrong on that hawkish shift from Clarida at the end of the week. Longer-term, still bullish and as long as 1830-40 holds nicely should be upside only. 

Brent: I didn't really have an oil view this week, we've come a bit lower but I am now long for the week ahead. 

Equities: Still around the 4700 mark so this view held out quite nicely. I really am getting a sense we're running out of steam though for equities. 

------------

Hello Everyone. This is the first edition of my new Sunday newsletter "No Rest for FX". I'm not very happy with the title but we move... submit a better name for a Sunday newsletter and if I change it there'll be a prize - not a monetary one, just honour or something :) 

Basically, this newsletter will take the same key FX pairs, commodities and indices and look at the charts, provide a quick comment on week-ahead views, and also consider impacts from any key data. I will keep the covered assets the same each week unless there is a major reason to add something else. 

Hopefully this publication is useful to the day traders out there, as well as my now growing following of students, but please always reach out with ways I can improve my content, I'm always receptive to constructive criticism. 

All charts cTrader FxPro unless otherwise stated. I

EURUSD: NETURAL - Key events: Inflation data, ECB Speakers / Fed Speakers

It's been a rough couple of months for EURUSD, and we've fallen a long way from YTD highs around 1.23 (around 7%). This is mainly the reason why over the more medium-term I am constructive on EUR - there are too many hikes priced for the Fed, and this will be walked back in the coming months, but also we are likely to see some kind of retracement after a move like this. I see EURUSD ending the year around 1.16, possibly a run to 1.17 by Jan 22. If we break significantly lower, then I think 1.12 should act as a floor for the time being. 

I don't see the inflation data being a big mover, a major beat will be talked down by the ECB as a transitory spike (natural gas surge etc in Europe). A big downside surprise probably not going to do much either... how much more dovish can they be? 

GBPUSD: BULLISH - Key Events: Unemployment data, inflation, retail sales

SHUT THE FRONT DOOR! Luke Young bullish on GBP. Well, not really. We've dropped a long way in the last couple of weeks and I am just tactically bullish for this week given we have a lot of data which could print decently (especially inflation). This will again fuel (mistakenly) bets for BoE hikes in December, and this could lead to a decent move in GBP. I'd target 1.3535 for this week - that also ties in with the purple Fib retracement from high to low. 

Longer-term, yes I'm bearish. Look for a 1.32 by year-end after the BoE doesn't hike... again. 

TRADE IDEA: Sell EURGBP: SL 0.854 TP 0.849 (1:1) - Above rationale, bounce in GBP, neutral EUR, safer play than versus USD. 

EURCHF: BULLISH - Key Events: CHF IP data

No surprise... I'm bullish EURCHF. Yes, it's been bloody painful for me and anyone who followed me into this trade about 2 months ago. Nonetheless, are the charts perhaps... just perhaps pointing to some kind of break higher? We've been trading in this tight range for the last couple of weeks. Sure, those on the other side will say this is consolidation before another leg lower. But do we believe this? The SNB is making more and more interventions, and as I've been saying for months, it is only a matter of time. Comments like the below pointing to increase intervention - we've seen it before, in 2011 with the introduction of the cap at 1.20, then its sudden removal in 2015. The SNB sure does like to surprise. 

UPDATE: A previous version of this report inadvertently said the SNB introduced the 1.20 cap in 2015, the opposite is true - it was abandoned. 

Source: Reuters

USDJPY: BEARISH - Mainly on divergence between JPY performance and US 10y yields. 

Source: Refinitiv

I'm not going to lie to you, I rarely trade the JPY and I don't really understand the dynamics which have been driving the currency recently. On the one hand, the CHF has been stronger due to "demand for haven currencies" and yet the JPY is significantly weaker. Now I know that the JPY is strongly driven by retirement flows but also Treasury yields, particularly the 10y. Looking at 10y yields, the JPY tends to move in sync a la the chart above. However, earlier this year the 10y yield was higher than it was now and the highest the JPY reached was 111. We are now closer to 114. 

This seems like a mismatch to me, and if I wanted to trade it I'd probably avoid USDs and trade something like CHFJPY which also sits near recent highs (short that is). 

XAUUSD: TO THE MOON BABY! Inflation and dovishness driving gold higher. 

Last week gold finally got a move on and broke out of its recent ranges. We now have broken out of the triangle pattern marked up on the chart above, and have surged on to USD1864. My first target is USD1910 in the medium-term, possibly by the end of this week if the inflation numbers are pretty mighty. I seriously do consider gold moving to ATHs in 2022 if this story of dovishness and inflation persists. Own havens, hold them, never sell. To the moon baby. 

BRENT: NEUTRAL - Not expecting any change in dynamics for now. 

Source: Bloomberg 

This is usually the sign of tops in a market when people start making massive bets on "supply concerns" in a market in which supply generally is pretty responsive to price. The idea of USD250 (or even 150) oil is ridiculous to me because of this thing called the Permian Basin. Most oil traders should have heard of it... but as prices rise more oil will come online here. There's still another 1.5m barrels to get back online in the US, this isn't much, but with OPEC hikes the supply chain issues are going to ease. 

Anyway in the short-term, not sure what changes the narrative. Sure we here a lot from Biden on SPR releases, but I can't see this happening without cross-country cooperation from others with massive reserves (Japan etc). So I'm neutral for now. Ukraine/Russia is a risk to the upside so keep an eye there. 

EQUITIES - NEUTRAL: 

I've got no real views here for the time being. Go with momentum - if we get new ATH worth being long, otherwise I'd tactically be a bit short / consider taking risk off the table. 

That's all for the first edition of No Rest for FX. Please do hit me with questions / comments and mention any other asset classes you'd like included. My hope is that these commentaries are short enough to be digestible yet relevant enough to provide useful insights.