AUD MoF XAG

Oswald’s taking off the boots

The year-end USD selling is off and running and even USDJPY is participating as Japan decided to hammer it overnight. Not too much to chew on macro-wise, though the hawkish RBA minutes are another brick in the wall. The 2025 high is 0.6707 and we are a few pips away from that. AUD is the most-loved currency for 2026, for good reason, and so rebalancers and speculators and central banks and everyone is more likely to buy than to sell over the next 3-6 weeks.

I know AUD is consensus, but I don’t think it’s crowded. And while terms of trade has been a red herring for years, rate differentials have mostly worked with a bit of a lead or lag. AUD has been stuck in a range for three years, and so were rate differentials. Now rate spreads have blown higher and well through the top of the range.

With implied vols low, and enthusiasm muted after a grillion false starts, the best strategy is probably to pick something that sounds like a bit of a stretch and slap it on. Here are some digis (rough price off 95 spot) to give you a sense of what the market is pricing.

1-month 0.6840              18%
2-month 0.6900              20%
3-month 0.6950              20%

The 1-month 0.6840 gets you to the fattest part of the new year trade. As discussed a few times in here, the most popular trades of the year tend to get juice around 15DEC and peter out around 31JAN.

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USDJPY intervention isn’t as much of a thing today vs. yesterday; but still good to be ready

Intervention urgency has plummeted as USDJPY joins the rest of G10 as the dollar heads south for winter. In case USDJPY rallies over the holidays, I looked at the post-intervention landscapes so that I (and you) can be prepared. It’s unlikely we go all the way back up above 158.00 in the near-term, but anything is possible. Nick made the point that the high on the day of the intervention is probably the most important reference point for determining where USDJPY goes afterwards, so I did some calculations based on that and based on opening levels on intervention day, too.

Takeaways:

1. To determine where to buy USDJPY on intervention day: Take that day’s high and multiply by 2.8% and 3.8% and that gives you the buy zone. If 159.00 is the high and they intervene, for example, then you cover shorts and go long in the 152.96/154.55 zone.
2. The second day of intervention doesn’t hit USDJPY as hard as the first. This is pretty obvious as there is no element of surprise on Day 2.
3. Price action in the days after intervention is quite random. Marginal new lows, but no trend lower.

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Silver

XAG continues to fly and while I love to short parabolas, this one is trickier than usual with year-end upon us. The first eight weeks of the year are seasonally the best for precious metals. The current explosion higher in silver has all the hallmarks of previous widow-maker moves as retail piles in, price goes parabolic, the narrative is convincing, and options volumes explode. Here, I show the same chart with two different x-axes so you can see the full history in the first, and greater detail in the second.

Buying silver when retail is YOLOing options has not been a good medium-term strategy, but in the short term it creates explosive gamma squeezes and crazy momentum. Still, while I’d been cutting silver longs, it doesn’t feel like the right time to take the other side.

It’s mildly interesting that gold options volume has not spiked along with silver volumes this time. Maybe if you have to own some precious metals, switching out of silver and into gold will reduce your downside convexity if things correct or reverse. That red line up there tells you r/wallstreetbets is heavily involved at this point.

Looking at silver’s deviation from the 100-day moving average, we are also approaching nosebleed territory. There have been nosebleedier moments, but not many.

This certainly does not feel like a 2020-style environment to me. It feels more like 2006 or 2011. But if we did get to 65% above the 100-day MA in the near-term, that would be something close to $79.50/$80.00. That’s probably a great target and/or place to think about putting on some bearish trades. Then again, the bullish seasonal lurks.

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Final Thoughts

1. Today’s GDP revisions are a nice reminder that the US economy will not go quietly. We are about to enter year four of the soft landing and there is still no sign of the often spotted, never real Bigfoot Recession. Hat tip to Manoj Ramnani for coining the term: Bigfoot Recession in early 2024. It’s a funny and accurate anecdote.
2. The EURSEK seasonal trade is entering the take profit zone and I cover half notional at 10.8050/10.8150. The USDCNH also starting to work. Inshallah.
3. An excellent question:

Have a solemn yet fuzzy day.

There is a Twitter account that posts only pictures of mascots during moments of silence in sports.

https://x.com/MascotSilence

This pic is a moment of silence for Armistice Day at a UK soccer match.

 

HT Tim Power

good luck ⇅ be nimble