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EURUSD

I am back from two weeks off and it seems like this chart does a pretty good job of explaining EURUSD since my departure on 11SEP.

The U.S. economy is running hot, Europe is losing the global AI race, energy supplies and French politics remain big concerns for the EUR, and global yields continue to normalize back to 1990s levels. And, of course, there are deficit worries.

Large deficits are generally leading to higher yields this year, while the FX story has been more about relative growth and yields. This chart shows 2026 yield changes map fairly well to the latest IMF deficit forecasts. But if you make the same chart for FX—it’s a Jackson Pollock.

Relative growth and rates are driving FX while fiscal vulnerability shows up more clearly in bonds.

While it’s easy to explain/justify 1.1350 in EURUSD and 0.7000 in AUD in hindsight, further USD gains will rely on more strength in this week’s U.S. data. With gold failing to lift off, the BOJ not nearly hawkish enough to satisfy market expectations after Bessent’s chest-pounding, and the RBA failing to deliver on the most hawkish expectations, the USD is back in charge.

An interesting aspect of the price action over the past two weeks is that the Fed hike and subsequent rise in yields has not hurt stocks, even as we roll through the most dangerous two-week seasonal period for risky assets. While breadth has been abominable, the indexes have held in unbelievably well and equity and crypto bulls must be incredibly emboldened as we enter a stronger seasonal window.

Zooming out a bit, while I still believe that the two main tail risks for EUR are both to the downside (winter energy crisis and/or French political risk, see here for a discussion of these risks written August 12) EURUSD is approaching a big support zone at 1.1270/1.1320.

The pair has mostly been going nowhere in a messy 1.13/1.18 chopfest since May 2025, and you can see how the 2023 high was 1.1270 and the 2026 low is 1.1330. This area, therefore, should be sticky.

In the past, I have often made the mistake of coming back from vacation guns blazing, entering a bunch of trades in max size because I am excited and want to get going. Really, I was chasing dopamine more than expected value. This feels like a moment where I could easily make that mistake again, so instead I’m going to say that the USD rally here looks logical enough, but these are not great levels to jump on board. EURUSD is right on support while USDJPY is probably mid-range inside 152/160.

Let’s see what the next few days bring with PCE, NFP, month end and so on. For what it’s worth, there should be no strong month-end signal for the USD as the NASDAQ is up a bit, S&P 500 is flat, and the Russell is down on the month.

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Calendar

There is quite a lot on the calendar this week, with Core PCE and U.S. Jobs the most interesting.

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Final Thoughts

I spent the last two weeks on a road trip, driving Route 66 from Chicago to Santa Monica with my wife.

This was in celebration/ mourning of my second son going off to college and thus our home is now suddenly quieter and emptier. The trip was one of the best things I’ve ever done. A never-ending run of interesting moments, strange encounters, and fun. A random mix of low-brow and high-brow with many laughs and twilight zone moments. One day you’re sitting next to Tow Mater, eating onion rings at a 1950s-era ice cream shoppe in a burnt-out desert town with almost no surviving businesses. The next day it’s fine dining at Capo in Santa Monica. One day you’re touring fine art galleries in Santa Fe and the next you’re jammed in with a group of tourists peering out over the largest meteor crater in the United States. No hour or day resembled the next.

One economic observation: Many, many “Help Wanted” signs in every state as there appears to be a shortage of drivers, mechanics, restaurant workers, etc., especially in the South.  And! I learned a fair bit of random information which will feature in some facts of the day this week and next.

All the normal Monday stuff is below.

It’s nice to be back. Thanks for reading.

Hi. Welcome to this week’s report. (To read about how I use and trade this report, see here.) The data show big shorts in EURUSD and USDJPY as the CFTC and specs have gone from max long USDJPY on a structural fiscal narrative to max long yen on a belief in policymaker jawboning. Coordinated intervention almost always works, eventually, but it’s hardly ever a free money trade. There can be months of pain and chop before the authorities finally win. The macro RSI leaderboard is dominated by USD pairs, which is another reason I am cautious about jumping on board into PCE and NFP. Short USDMXN or EURMXN might be worth a look as they blow through short gamma pockets and look rather overcooked up here.

Source: My wife’s phone

Oatman, Arizona is populated by many, many wild burros. There was a gold rush in the town in the early 1900s and when mining declined, the donkeys were released or abandoned. The population grew in the surrounding desert over the next 100 years.

Today they roam freely through Oatman and have become an attraction.

good luck ⇅ be nimble