Fun part over?

JPY

I have posted the following chart a few times. It shows that coordinated intervention (blue) is more successful than solo intervention (red). A key consideration here, however, is that even successful coordinated intervention in the past often had long lags before turning USDJPY direction for good.

Zooming in on the two most recent coordinated intervention episodes, you can see that in both instances, USDJPY went back to the previous extreme before turning.

You can see when the U.S. and Japan sold USDJPY In 1998, it went back to the highs before topping, and in 2011 USDJPY made new lows after the coordinated USD buying. While I am still net short USDJPY for now, it’s worth remembering we are now 700 points off the highs and they won’t intervene every day. It’s probably time to start thinking about a 155/159 range for a bit.

In other words: I think the next intervention is a buy. Especially with NFP coming up this week. I partially hedged the 157.50 put I bought last week (right around here, 156.80) and will look to hedge the other half at 156.00/10. One aspect here that is hard to discuss without sounding political: Intervention relies on credibility. And you don’t get credibility by planting this sort of thing for reporters to snap.

The way this is written is clearly for the benefit of an audience. Bessent, who has traded USDJPY many times, would not write “Japanese Yen” any more than he would write “intervene in the forex markets!” unless he was trolling and/or staging a message for the world. Problem is, $5-$10B is tiny, and the method of communication damages already-weak credibility. This is another reason to believe that this intervention is not necessarily going to be an instant winner and we are more likely to consolidate for a while.

Bessent has talked down yields for a year and a half, he’s talked down deficits, he’s talked down inflation, and he’s talked down oil. And they have all gone up. Most of what he has wished for has not come true. The market will have all this in its hivemind, either consciously or subconsciously, and so the U.S. Treasury’s wish for lower USDJPY will not be taken as seriously as it might have been in past administrations.

If you’re a vol person, it is probably a good time to take the other side of the 1-month USDJPY risk reversal as we are more likely to consolidate from here, not collapse another five figures. I will probably think about taking off the CHFJPY put spread soon as I think the fun part of the yen trade is over for a while.

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Calendar

The U.S. jobs report Friday is the highlight and we get ISM, some CPIs, and employment reports from New Zealand and Canada. I give this calendar 2 out of 5 stars.

Please see positioning report below.

Have a lotto-like week.

Hi. Welcome to this week’s report. (To read about how I use and trade this report, see here.) A rapid flip in JPY positioning as options markets reprice massively. Elsewhere, the market is now closer to home as the dovish FOMC meeting took out the increasingly large USD longs. No call to action here as positioning is fairly clean across the board. Decent amount of 155’s in USDJPY on the strike report.

https://x.com/RowanMMcDade/status/2083220626823680470

Why are people buying losing lottery tickets on eBay? Tax fraud!

There is a market for losing lottery tickets because in the U.S., gambling winnings are taxable and losses are allowable as a deduduction against winnings.

HT Tim Power

good luck ⇅ be nimble