EUR gold Waller

Trades

Given my short time horizon (average holding period 10 days, approx.) it’s not super common to have three trade ideas in the sidebar at once. I got a few questions about why I am long gold and short EURUSD at the same time given the standard correlation is thought to be USD up = gold down. Here is the answer.

1. Two different time horizons. The EURUSD I am looking for 1.1511, which is not particularly far away. The gold trade is a bit bigger picture and is predicated on a buy the dip mentality as deficits continue to increase in the U.S. and retail longs have been cleansed. The dream scenario now would be gold goes nowhere for a bit as EURUSD dumps to 1.1511, then they both rally from there.
2. Vastly different entry points. The EURUSD idea was to sell high as there was a narrative that the ECB could hike, but the Fed cannot. After the strong U.S. data, which confirms U.S. Exceptionalism continues, I felt that EURUSD above 1.17 was too high. On the other hand, buying gold at 4620 feels like a decent pullback from the 5600 highs and a reasonable entry point the other way.
3. It’s possible to make money short EURUSD and long XAUUSD at the same time. This scatter plot shows weekly performance of EURUSD and gold since 2000. You can see 66% of weeks show EURUSD and gold moving in the same direction (36% + 30%) while 20% of weeks see a rally in gold and simultaneously lower EURUSD. So, you’re right to ask about the pair, but it’s not certain that the combo is wrong. They can both make money at the same time.

I was curious how the regime of EURUSD down + XAU up was distributed over time, so I made this graphic. It looks remarkably similar to a UPC code.

A few things that stand out here (the dense/dark zones):

1. 2005 was secular commodity bull market + Fed hikes.
2. 2010/2012 was eurozone crisis and XAUEUR was a popular long due to fears of a euro collapse.
3. 2015 was ECB QE + China deval and rush for safe havens at same time.
4. 2020 COVID was a safe haven rush into gold and USD at the same time.
5. 2025 the relentless central bank buying of gold in recent years means it’s been an okay time to be long gold and short EURUSD at the same time.

Meanwhile, the short small caps trade is working fairly well so far. I am moving my stop loss on the EURUSD trade lower as it has captured about half the hoped-for move, and I don’t think the original stop is logical anymore. If we get above 1.1700/50, the idea is probably wrong at this point. As always, see sidebar for details on open trades.

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Calendar

When I made the calendar last week, there was no sign of Waller on Bloomberg’s calendar. Now, he is scheduled to speak twice this week. I believe Waller’s two appearances are the most important events this week. If he flips hawkish, that’s a game changer. If he embraces a very dovish track, that is too.

On April 17, he described a prolonged conflict as a tricky scenario but never mentioned anything about potential hikes. Let’s see what he says this week. The Tuesday appearance is a panel slot, and the Friday one is most interesting as it’s a full-on speech covering the economic outlook.

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Simon Flint

A useful chart from Simon Flint. Koeda likely to become the decisive vote for a hike in her speech on May 21.

As we get closer to 160.00 in USDJPY, one must assume intervention is on the table again. The MOF is fighting a losing battle vs. macro right now as bond markets fall and U.S. exceptionalism returns.

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Final Thoughts

1. Ideally, EURUSD should not go back above 1.1700. The 200-day has been a good pivot.

2. Article on Burnham’s chances of winning the by-election in the UK.

3. Polymarket odds of Burnham winning the by-election.

4. China data was not good.

Have a green week.

Hi. Welcome to this week’s report. (To read about how I use and trade this report, see here.) Our positioning report shows the market has now clearly gone long USD as the Fed story heats up with hikes priced in over the next 12 months. You can see a lot of red in the risk reversal zone there as options markets have moved meaningfully away from preferring USD puts to a preference for USD calls. In GBPUSD for example, the options market was bid for GBP calls in January while 25-delta puts are now bid 1.2 vols over calls. Spec volumes remain low in G10; the interest level is maybe 3 out of 10.

https://www.reddit.com/r/dataisbeautiful/comments/1tghonh/all_inhabited_places_with_more_than_0_people_per/

A map of inhabited Earth (green pixels = inhabited)

The world is split into pixels 400km² wide.

Pixel is green if population > 0 and purple if population = 0

good luck ⇅ be nimble