JPY and Cable

Subscriber-only

Taking profit on the USDJPY and looking for a way to get short GBPUSD for corporate month end.

by Brent Donnelly

July 26, 2024

Midjourney imagines Kruschev in water wings

Current Views

Sell GBPUSD @ 1.2889

(limit order) Stop loss 1.2961

If limit order not done by NY close, execute at market.

If not stopped out, cover at 11 a.m. NY time, Monday 29JUL

Long AUDJPY @ 99.47

Stop loss was 97.42 now 99.39

Take profit 101.94

It snapped back

USDJPY found its legs right at the decisive 152.00 level and has squeezed, with the help of another good directional call by the Atlanta Fed GDPNow (strong GDP). We are now right at short-term resistance on the hourly chart with the 100-hour 154.67/81 and the 24JUL New York open and New York high at 154.87. This is a good area to take profit on USDJPY longs and I will do so by either selling above 154.50 or square at EOD. I typed this when USDJPY was at 154.40 and now USDJPY is 153.80 as I get ready to hit send. Anyway, that’s the plan still.

I don’t want max short JPY risk over the weekend in case there are political headlines. I believe that part of the unwind in carry and degrossing of debasement trades is related to changing political odds in the USA after Biden’s recusal. It certainly has nothing to do with the economic outlook as the US economy continues to chug along nicely. I will keep the AUDJPY with the updated parameters in the sidebar.

GBPUSD

Corporate month end is Monday and that is a day when US corporations tend to buy USD. Some of that USD buying is often offset by real money buyers of GBP pre-positioning for the last day of the month, but in months where US equities are down (like this month) that offsetting flow is absent. As such, I like short GBPUSD for Monday and the question is: What is the best way to set up for that? It’s a short-term trade trying to capture the predictable USD buying that is likely to happen Sunday/Monday.

On the business day of the month where spot trades for value date month end (also known as t-2, aka corporate month end), GBPUSD is up just 41% of the time. When t-2 coincides with the NASDAQ negative on the month (as is the case right now) then GBPUSD is up only 29.1% of the time on t-2. That is a spicy statistic and one of the craziest low win rates of any study you could conduct of this sort. The moves are not gigantic, but they are reliable, and with a bit of tactical precision, you can sometimes extract 30 to 70 pips out of a trade like this.

The textbook trade is to sell GBPUSD at the close today and buy it back at 11 a.m. on Monday, but I am going to try to sell a rally today and perhaps eke out a slightly better entry point. The 100-hour moving averages come in at 1.2894/98 and those have been provided good trend definition throughout the summer.

So, the plan is to sell GBPUSD at 1.2889 (limit order), with a stop at 1.2961 and if that limit order doesn’t get done, just get short at the end of the day today with the same stop loss. Cover at 11 a.m. NY on Monday. I know the stop loss sounds far away, but I think it would be rare to get stopped out on this trade. But you need to have a stop loss somewhere. My best estimate of the expected value of this trade is in this grid.

Calendar

The calendar is absolutely bizzonkers next week with tech earnings amidst a tech blowoff, central bank meetings galore (two of them priced near a coin toss) and tons of other stuff. In preparation for this deluge, it is critical that you take a nap on Saturday and perhaps take one on Sunday too.

Final Thoughts

This week’s podcast with @MacroAlf is up!

We spend a good portion of the show talking about how to fade blowups. The podcast is getting more and more fun for us to record and I hope you feel that when you listen to it.

https://www.spectramarkets.com/library/podcasts/

I hope you get to try out your new dinosaur floaty this weekend.