No Rest for FX: Edition 3

UPDATE: 

EURUSD: View played out nicely, although for the wrong reasons. EUR weaker on the Payrolls report - I was quick to cash in when we dropped to around 1.128. 

GBPUSD: Neutral view was about right until the end of the week. 

EURCHF: This currency is just mad. I stand by my long-term bullish views. 

USDJPY: Bearish view was pretty much correct. Stayed below and continued lower than key marked levels. Breach of trend was also a nice opportunity to add to shorts. 

Gold: Still baffled by gold as of late, but I think long is the right place to be right now. 

Brent: Neutral view and staying out of the market was the right course of action. Much uncertainty remains but now we've had a big drop I'm starting to look more toward longs again. 

Equities: Bearish week-end view was pretty nice on the whole. I have been short since 4700 so to get down to 4500 is very nice. 

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Welcome to the third edition of No Rest for FX. Last week's edition has now been updated with a "performance review" of how my various calls went over the week. Available here

It's now time for the third edition, the central view is that Omicron continues to dominate the discourse, but I wouldn't be at all surprised to see some dip buying in the early part of the week. My bias remains for lower SPX however.

All charts cTrader FxPro unless otherwise stated. 

EURUSD: BEARISH - ECB Speakers likely to add weight with new variant

Short and sweet this week. I'm expecting even more dovishness than usual from the ECB and a lot of pushback from Lagarde about any possible tightening action. Pre-Omicrom we had been hearing that the ECB would just let its emergency purchases end in March, now I see this as unlikely and wouldn't be surprised to hear some murmurings about extensions or expansions of the APP. 

Then, it'll be payrolls, and another decent numbers as I suspect might bring some pricing for faster tapering back to the market. I don't think we will see faster tapering, but I think the market will expect that. I'd be short EURUSD targeting 1.1240, SL at 1.1380. 

Note that from a more technical perspective, I reckon if we break above 1.142 approx then we could be back into serious bullish territory for EUR, so do be careful out there. 

GBPUSD: NEUTRAL - No real view this week. 

Think all attention will soon turn to the BoE, the market now sees a much lower chance of a hike at the next meeting (50/50 compared to previous pricing close to 100). As I've said a number of times, I see the probability of a December hike as close to zero - especially with Omicron. 

EURCHF: BULLISH - Commentary same as last week. 

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. 

Source: Reuters

USDJPY: BEARISH - Haven JPY likely to do well - REMAIN SHORT CHFJPY

JPY broke above 115 early last week, but then following the "Risk Off" Omicron news, the JPY strengthened significantly. Notably, CHFJPY also weakened, so the JPY was the preferred haven. 

This week, I think we could see more JPY strength as some of the more bullish bets for USDJPY are revised lower in this uncertain environment. That said, I don't want to trade USDJPY outright due to the technicals marked on the chart. We have that trend line which has held well and we are now in oversold territory, could see a technical rebound higher, although I do see a structurally lower USDJPY through 2022. 

XAUUSD: BULLISH - Fail to understand the selloff Friday. 

I fail to understand why gold slumped so much Friday on the "risk off" pandemic news - initially gold went higher then it got a bit battered. To me, this new wave should support gold for three reasons: 

1) Gold is a haven asset and should benefit from uncertainty. 

2) This probably means more dovish policy in a high inflation environment - this should benefit gold. 

3) This also raises the probability of further bottlenecks later on if lockdowns returning - raising future inflation. 

Technically, we look pretty good too, with the 1770 supports holding up well. 

BRENT: Neutral - All about OPEC 

I'm going to level with you... don't trade oil this week. Nobody knows what OPEC+ will do Thursday (well... until the race to leak the results starts). 

EQUITIES - BULLISH Mon/Tues as buy the dip does well, BEARISH week-end as more Omicron / payrolls uncertainties weigh. 

TREASURIES - NEUTRAL - Payrolls will be a driver, so don't expect much action before Friday unless we get major debt ceiling news. 

More generally, I expect we will see a steepening of the curve in the coming weeks. I think the 2y yield is still too high, and the 10y yield is too low. This would be where I'd play for any steepness. This would also be a bull steepening (since 2y rates would be coming down and this makes it cheaper for markets) so this could be a positive catalyst for another equity (and especially tech) rally to ATH. 

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That's all for today folks. 

Happy Trading.