Equilibrium

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Market feels burnt-out and in temporary equilibrium. Cutting the USDCAD trade.

by Brent Donnelly

February 9, 2023

Can you guess the

top 5 countries in the

world, by size of

Spanish-speaking

population?

Current Views

Long 08MAR

132.50 USDJPY call

cost ~0.75% off 131.10

February 9, 2023

Equilibrium

The market seems to have found its happy place here as the CTA unwinds from last week have played out, US yields have stabilized at higher but still familiar levels, and now we wait for CPI next week. Prices went up significantly across the board in January as all the usual suspects like lumber, used cars, and gas prices rose. Some of those rises cooled in February, though used car prices seem to be ripping higher again.

…And it seems like everyone has forgotten about China reopening as the balloon narrative took precedent the past few days.

My thesis in USDCAD is stale and I’m getting out. The idea was that low and falling oil prices and the 5-day bearish signal for stocks from SPX up / VIX up last Thursday would lead to a meaningful rally in USDCAD. Instead, it’s doing nothing as it’s exactly where it was when I entered. Moving right along.

The Riksbank announcement overnight was interesting as they are now explicitly targeting a stronger currency as part of their inflation fight. I suppose you could say there is now a false break of the 11.35 level, as you can see here.

EURSEK daily chart back to 2020

And here’s the chart back to 2012 so you can get a sense of the bigger picture.

EURSEK daily chart back to 2012 .. 8.20 to 11.35

I can’t get excited enough about EURSEK to put on a trade at this moment, but I will be looking to sell a rally to 11.23/11.26. I generally like to go with new central bank guidance on currency markets but the entry point here is too ropey. There should be massive resistance now in EURSEK between 10.28 and 10.35.

USDJPY

USDJPY is disappointing overnight as the market did a ton of work to the topside yesterday but could not achieve liftoff. As long as we are above 130.40/50, it’s not really doing anything wrong, but perhaps the wage data early in the week has reinforced people’s confidence on the normalization trade, regardless of who is named BOJ Governor.

USDJPY hourly chart needs to hold 130.40/50

Final Thoughts

I am keeping things short today as I think we are in for a couple of quiet days as last week’s madness and unwinds and then the whipsaw on Powell has left the market burnt out and low-energy.

¡Que tengas un buen día!