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The dollar is on track for biggest weekly drop in 10 months. Scope for further weakness. We concluded that it was too early to aggressively position for the dominant themes of 2019, namely late-cycle stress (bearish high-beta FX) and mean-reversion in an exceptional US economy and US dollar (but only against cheaper and outright undervalued reserve currencies).
Barely three weeks later and markets have been convulsed by neurosis that the end-of-cycle is nigh, at least at some point in 2019. This may be unduly alarmist but we are nevertheless inclined to take the portfolio in a rather more defensive direction as the ROW shows little sign of becoming less mediocre to counterbalance the waning of US exceptionalism.
We are re-scaling a NZD short, adding a spot position to augment a digital put that is only very low delta now. NZD has been flattered by the abrupt re-pricing of RBNZ policy a month ago but positions should be cleaner now and NZD hence more vulnerable to a further attrition in global macro confidence.
We have played the yen from both sides recently, holding a tactical short (USDJPY) balanced by a medium-term long (AUDJPY). But with risks to the global economy on the rise, we're quite delighted to book profits on USDJPY longs and alter discreetly long JPY in outright terms as Japanese capital outflows may be more structural (FDI); that's not to turn the table that they will always be insensitive to macro or market conditions.
The ongoing slide in the Euro area PMI challenges the consensus view that Europe is on the cusp of better growth. The pricing for the ECB (one rate per year after 2019) is at risk, especially compared to an inverted US curve. EURCHF short are advocated as a proxy for EURUSD. This position hedges a medium-term ratio put spread on USDSEK we activated a month ago.
While Sterling still appears to be untradeable. We uphold an inherited bullish sentiment in EURGBP but maintained short hedges via delta puts on a proper luminosity or insight as to how the political deadlock over Brexit dust would be settled.
Trade updates:
Square-off USDJPY longs and book profits.
Fresh trades: Short EURCHF and NZDUSD in spot.
Maintain current and initiate fresh trades: Short NZDUSD (3m AED), short AUDJPY (short 3m vs long 6m digital calendar spread), short USDSEK (6m 1x1.5 ratio put spread), short EURGBP (2m ratio put spread). Courtesy: JPM
Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -31 levels (which is mildly bearish), while hourly USD spot index was at 37 (mildly bullish), GBP is at 52 (bullish) and NZD at -71 (bearish) while articulating (at 10:14 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
