Fed, Tibet, and currencies

Fed

The Powell Fed has a consistent history of delivering dovish surprises, but that changed in 2025. You can see the mega skew and change in reaction function here:

S&P performance has been more mixed. You can see that during the downtrend in 2022, the market squeezed on FOMC day, but during the up trends of 2020, 2021, 2023, 2024, and 2025, FOMC days were a coin toss for the S&P.

There is no heavy skew.

My view today is more predicated on what seems to be a very dovish runup as the market is 100% sure that there will be two dissents and Powell will leave the door open for two cuts in 2025. There are only three more meetings this year, and Bowman doesn’t seem like a 100% guaranteed dissenter to me, so I think there is plenty of room for a wait-and-see message to sound relatively hawkish. With the big short covering move in bonds, the market is at least fearful of a dovish Fed, if not positioned for one.

Immediately after the FOMC press conference, I will be on a Forward Guidance livestream with Joseph Wang (FedGuy12 on Twitter), Bob Elliott (ex-Bridgewater, now CEO and CIO of Unlimited Funds, and Felix Jauvin, all-around nice guy, Canadian, and podcaster/financial analyst. The stream will show the Fed first, then cut to our smiling faces when the presser is over. You can watch it here. I wore Connor Dwyer’s favorite shirt for it.

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Dam, yo

This story from Bloomberg is an interesting deep dive on the Yarlung Zangbo superdam megaproject.

https://blinks.bloomberg.com/news/stories/T06ICAGPFHRH

“Sixty times the cement of the Hoover Dam, more steel than 116 Empire State Buildings and enough concrete to build a two-lane highway around the Earth five times — that’s what will go into China’s new $167 billion hydropower project in Tibet.”

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Currencies

My bullish USDJPY view got off to a rough start as yields dumped yesterday on the back of short covering into QRA and FOMC. USDJPY is mostly back to following interest rate differentials, though you can see here that the USD is a bit stronger than you might think it should be if you just overlay rate diffs and USDJPY over the past two weeks.

This is probably a result of continuing unwinds of USD shorts as the market slowly realizes that most drivers of the USD weakness narrative have now at least temporarily disappeared. Pronounced EUR weakness on the back of a milquetoast trade negotiation are also creating a generally bid tone for the USD. Positive terms of trade stories are not helping AUD or CAD as both break to two-week lows.

Despite the slumpy start, I still like USDJPY higher because of my FOMC view. My hope is that we get above the strike (149.50) before NFP and then there is some gamma to trade.

USDCAD has completed a perfectly-symmetrical hat-shaped move as it rallied for 133 days then sold off for 133 days and is now above the 20-day MAs for the first time since just before Liberation Day.

It feels a tad silly going from a max bullish USD narrative NOV/FEB to max bearish APR/JUN and then reverting back to a bullish USD story again, but I will keep an open mind! Maybe the USA is OK and capital flight was a one-month thing and NIIP and yuge deficits never mattered before and won’t matter again. As I have been saying for ages, it’s the economic data that matters now. We are about to get some!

As we approach the end of the month, EURCHF is slip sliding away once again and the mega-important support at 0.9230/50 is almost in play again. Remember that the last day of the month is uber bearish EURCHF as capital flows and repatriation dominate. Here is the performance of EURCHF from 7 a.m. to 11 a.m. NY time and 10 a.m. to 11 a.m. NY time on the last business day of the month.

If, for some crazy reason, you want to be long EURCHF… Going long at 11 a.m. on the last business day of the month is the play as the selling often burns itself out then and the first day of the month mean reverts.

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Final Thoughts

Here is a link to one of the best short essays I have read in quite some time. HT JROSS.

https://sashachapin.substack.com/p/what-the-humans-like-is-responsiveness

Two fun quotes from the essay:

“Everyone wants to know how to be liked. But I think we all know, actually, how to be liked, it’s just that it’s hard. It takes attention and openness, and the confidence to present your character like it’s a fun mask you’re wearing rather than a lesson you’re desperate to teach someone.”

“Life is good if it squishes nicely when you poke it.”

I particularly related to this part…

“A major factor in burnout is “broken steering”: people feeling, for a long period of time, that their efforts to exert control don’t do anything. They show up to work, click their mouse, make suggestions, and nothing happens, and it’s hard to tell if their work ultimately matters.”

At one particular market making job I worked at, I had a very bad trading year, and yet did not get paid down. In fact, I got paid the same amount as the prior year, which was an excellent trading year. The bank wanted to treat me nicely. Which was nice. They did an admirable and nice thing and I was highly appreciative.

But ironically, even though this should have made me happy, it only made me happy for about 7 minutes and then I soon transitioned to feel like there was no relationship between my pay and performance. That created a bit of an existential oof in my trading soul. The broken steering effect came into play as my subconscious was now telling me that my P&L doesn’t matter because it doesn’t change what I get paid. The following year, I sometimes drifted into lazy or sloppy trading, despite my best efforts to fight back against the drifty feeling.

If a trader works for you and has a bad year, but you really like them and want them to stay and be excellent—pay them down! Tell them they are appreciated but that there has to be a link between pay and performance otherwise that trader might subconsciously feel like: What are we doing here? Who cares how well I perform?

I realize that linking pay and performance is not controversial when it comes to employee motivation, but having experienced this first hand, I think the broken steering wheel analogy is apt.

Have a multi-standard deviation kinda day.

Congratulations to Edwin Dorsey’s Bear Cave for triggering the largest down move I have ever seen in a stock after the publication of a short thesis.

https://thebearcave.substack.com/p/problems-at-pheton-holdings-pthl

good luck ⇅ be nimble