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fx:macro Summary Changes 2023_04_29

Created 2 years agoDiff never expires

36 removals

107 lines

41 additions

109 lines

"21.04.23

"29.04.23

***** MACRO *****

>>BULL<<

▶︎ Good data out of China this week

▶︎ No sign of exuberance so far

▶︎ FX volatility is still pretty low and falling

▶︎ The VIX term structure is steep and well above cash VIX, the VIX-VVIX divergence has closed

▶︎ COT data for the ES is very bullish

▶︎ No sign of credit spreads widening again

>>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

▶︎ Treasury futures COT positioning is mostly bullish

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

▶︎ VIX/VVIX correlation signal has triggered and is still in effect

▶︎ Industrial metals aren't performing

▶︎ CL has closed the OPEC gap on the chart: the cut is bearish

>>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.

Zooming out a bit on most macro charts I look at, nothing seems to have changed for months: stocks, commodities, bonds, DXY etc. all going nowhere. The banking crisis (or better: mini-crisis?) saw a bit of a resurrection this week but the market doesn't seem to care much. Tech earnings surprised but the OPEC cut tells the story about global growth/demand, and metals confirm it. Equity sectors look better than I thought last week, and stocks are trading way stronger than they ""should"". Honestly, I'm confused but I suppose I'm not the only one.

***** USD *****

>>BULL<<

▶︎ COT positioning is still bullish

▶︎ Positive seasonality

▶︎ Q1 GDP was bullish under the hood, GDPNow for Q2 starts at 1.7%

>>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.

It's a bit weird to see that USD sentiment is neutral while every other G8 currency is either bullish or bearish. I still don't see a good reason why USD should trade higher when we're in the trough of the dollar smile. The Fed is expected to hike by 25 bps and then hold, maybe they put in some hawkish undertones but I doubt USD strength will last long in that scenario.

***** 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

▶︎ Sentiment is bearish

>>BEAR<<

▶︎ CESI is heading lower

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

▶︎ COT positioning is at a bearish extreme

▶︎ COT positioning is at a bearish extreme and Large Trader net positions aren't confirming the strength

▶︎ 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.

The ECB has sounded more hawkish than the Fed for a while now, and we'll see if we get some forward guidance this week or at least some sources after the rate statement for a bit of more insight. For now I'll stick with what worked well over the last few weeks: going with the EUR's strength, taking short-term longs and being aware that the air is getting thin up here for EUR based on positioning data.

***** GBP *****

>>BULL<<

▶︎ Inherent strength

▶︎ CESI is going strong

▶︎ CESI is still still going strong

▶︎ Yields are outperforming

▶︎ Yields are outperforming, 2s10s are bear flattening

▶︎ Hot CPI this week

▶︎ Bearish sentiment

>>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.

It's still showing strength, it's the only currency with a good-looking CESI and 2s10s are bear-flattening. Last week's hot CPI print means a mess for the economy but the BoE will likely have to do more, and GBP likes that so far.

***** AUD *****

>>BULL<<

▶︎ Commentary in this week's PMI sounded extremely upbeat

▶︎ Commentary in last week's PMI sounded extremely upbeat

▶︎ 25-delta risk reversal is looking bullish

>>BEAR<<

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

▶︎ Bearish seasonality

▶︎ Bullish sentiment

▶︎ Weaker CPI this week

>>SUMMARY<<

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

Market pricing for the RBA this week is 100% for no change and even if they came in hawkish in the statement it probably won't turn the tide for AUD. No change to the bias.

***** NZD *****

>>BULL<<

▶︎ 25-delta risk reversal is looking bullish

>>BEAR<<

▶︎ Bullish sentiment

▶︎ It's inherently weak

▶︎ CPI way below expectations this week

▶︎ CPI way below expectations last 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.

I don't see anything that would make me change the bias now. Still liking it less than AUD because of the CESI spread but that bias is very vulnerable to the RBA this week.

***** 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

▶︎ CESI is lower

▶︎ 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.

The summary has been unchanged for a few weeks plus now CL could be going lower: 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<<

▶︎ COT positioning is now bearish

>>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.

It looks pretty overextended and COT positioning is now bearish. Sentiment is still very much in favour of it and SNB speakers don't miss a chance to tell everyone they'd hike more if necessary.

***** JPY *****

>>BULL<<

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

▶︎ Tokyo Core CPI still >3%, it's surprising and it's not coming in deflationary

▶︎ Ueda left the door open to a pivot, and inflation forecasts in the BOJ's Outlook have been upgraded

>>BEAR<<

▶︎ Still the most dovish central bank out there

▶︎ Still the most dovish central bank out there, and Friday's SOMP or the announced policy review didn't change anything about it

▶︎ Bullish sentiment

▶︎ Inherent weakness

>>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."

That was definitely an interesting Friday for JPY, and the communication around their new policy review was pretty bad. But when I try to boil it down it's not all that dovish: they upped their inflation forecasts, Ueda said the planned review doesn't stop them from doing whatever they want, and announcing a 12-18 month review as a way of forward guidance (which they could very well have done explicitly) seems weird. Also, Tokyo Core CPI on Friday surprised to the upside and came in above the previous print. Price action in JPY was very clear and IV in USDJPY declined, so the market is going with the dovish version for now."

Saved diffs

Original 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."

Changed text

Open file

"29.04.23
***** MACRO *****
     >>BULL<<
▶︎ FX volatility is still pretty low and falling
▶︎ The VIX term structure is steep and well above cash VIX, the VIX-VVIX divergence has closed
▶︎ COT data for the ES is very bullish
▶︎ No sign of credit spreads widening again
     >>BEAR<<
▶︎ Risk-on currencies aren't performing
▶︎ Most Asian and EM PMIs are weaker again
▶︎ Market breadth isn't looking healthy
▶︎ Treasury futures COT positioning is mostly bullish
▶︎ VIX/VVIX correlation signal has triggered and is still in effect
▶︎ Industrial metals aren't performing
▶︎ CL has closed the OPEC gap on the chart: the cut is bearish
     >>SUMMARY<<
Zooming out a bit on most macro charts I look at, nothing seems to have changed for months: stocks, commodities, bonds, DXY etc. all going nowhere. The banking crisis (or better: mini-crisis?) saw a bit of a resurrection this week but the market doesn't seem to care much. Tech earnings surprised but the OPEC cut tells the story about global growth/demand, and metals confirm it. Equity sectors look better than I thought last week, and stocks are trading way stronger than they ""should"". Honestly, I'm confused but I suppose I'm not the only one.

***** USD *****
     >>BULL<<
▶︎ COT positioning is still bullish
▶︎ Positive seasonality
▶︎ Q1 GDP was bullish under the hood, GDPNow for Q2 starts at 1.7%
     >>BEAR<<
▶︎ CESI has dropped, CSII is lower too
     >>SUMMARY<<
It's a bit weird to see that USD sentiment is neutral while every other G8 currency is either bullish or bearish. I still don't see a good reason why USD should trade higher when we're in the trough of the dollar smile. The Fed is expected to hike by 25 bps and then hold, maybe they put in some hawkish undertones but I doubt USD strength will last long in that scenario.

***** EUR *****
     >>BULL<<
▶︎ Hawks in the GC are still pushing for higher rates
▶︎ PMI commentary was very positive
▶︎ Inherent strength
▶︎ Sentiment is bearish
     >>BEAR<<
▶︎ CESI is heading lower
▶︎ German PMI on the heatmap is weaker, Eurozone isn't improving
▶︎ COT positioning is at a bearish extreme and Large Trader net positions aren't confirming the strength
▶︎ Bearish seasonality
     >>SUMMARY<<
The ECB has sounded more hawkish than the Fed for a while now, and we'll see if we get some forward guidance this week or at least some sources after the rate statement for a bit of more insight. For now I'll stick with what worked well over the last few weeks: going with the EUR's strength, taking short-term longs and being aware that the air is getting thin up here for EUR based on positioning data.

***** GBP *****
     >>BULL<<
▶︎ Inherent strength
▶︎ CESI is still still going strong
▶︎ Yields are outperforming, 2s10s are bear flattening
▶︎ Bearish sentiment
     >>BEAR<<
▶︎ PMI has worsened
▶︎ COT positioning is now bearish 6B as well
▶︎ Bearish seasonality
     >>SUMMARY<<
It's still showing strength, it's the only currency with a good-looking CESI and 2s10s are bear-flattening. Last week's hot CPI print means a mess for the economy but the BoE will likely have to do more, and GBP likes that so far.

***** AUD *****
     >>BULL<<
▶︎ Commentary in last week's PMI sounded extremely upbeat
▶︎ 25-delta risk reversal is looking bullish
     >>BEAR<<
▶︎ It's just not trading well despite the positive data from China
▶︎ Bearish seasonality
▶︎ Bullish sentiment
▶︎ Weaker CPI this week
     >>SUMMARY<<
Market pricing for the RBA this week is 100% for no change and even if they came in hawkish in the statement it probably won't turn the tide for AUD. No change to the bias.

***** NZD *****
     >>BULL<<
▶︎ 25-delta risk reversal is looking bullish
     >>BEAR<<
▶︎ Bullish sentiment
▶︎ It's inherently weak
▶︎ CPI way below expectations last week
▶︎ CESI is dropping, the CESI spread AUD-NZD is rising
     >>SUMMARY<<
I don't see anything that would make me change the bias now. Still liking it less than AUD because of the CESI spread but that bias is very vulnerable to the RBA this week.

***** CAD *****
     >>BULL<<
▶︎ COT positioning is bullish, Dealers are near multi-year long levels
     >>BEAR<<
▶︎ Crude oil has shown weakness
▶︎ CESI is lower
▶︎ PMI weakening on the heatmap
▶︎ Bullish sentiment

>>SUMMARY<<
The summary has been unchanged for a few weeks plus now CL could be going lower: 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
▶︎ It's the currency with by far the worst sentiment; USDCHF and EURCHF are still the two FX pairs with the most bulls
     >>BEAR<<
▶︎ COT positioning is now bearish
     >>SUMMARY<<
It looks pretty overextended and COT positioning is now bearish. Sentiment is still very much in favour of it and SNB speakers don't miss a chance to tell everyone they'd hike more if necessary.

***** JPY *****
     >>BULL<<
▶︎ Tokyo Core CPI still >3%, it's surprising and it's not coming in deflationary
▶︎ Ueda left the door open to a pivot, and inflation forecasts in the BOJ's Outlook have been upgraded
     >>BEAR<<
▶︎ Still the most dovish central bank out there, and Friday's SOMP or the announced policy review didn't change anything about it
▶︎ Bullish sentiment
▶︎ Inherent weakness
     >>SUMMARY<<
That was definitely an interesting Friday for JPY, and the communication around their new policy review was pretty bad. But when I try to boil it down it's not all that dovish: they upped their inflation forecasts, Ueda said the planned review doesn't stop them from doing whatever they want, and announcing a 12-18 month review as a way of forward guidance (which they could very well have done explicitly) seems weird. Also, Tokyo Core CPI on Friday surprised to the upside and came in above the previous print. Price action in JPY was very clear and IV in USDJPY declined, so the market is going with the dovish version for now."