Simon Says

USDJPY

Could be a little confirmation bias kicking in here because I’m short CADJPY, but I liked these points from Simon Flint.

BoJ meeting (Oct 30) ticks several boxes for potential FX intervention:

• Of the six BoJ meetings so far this year, three have been followed by almost immediate rate checks or actual intervention later that day, while another was followed by actual intervention two trading days later.
• It’s on a Friday. Every BoJ meeting on a Friday this year (January 23, July 31, September 18) has been followed by rate checks or actual intervention later that day. Friday is a good day for intervention in general. Liquidity is thinner, and market participants may be more reluctant to fight their corner ahead of the weekend.
• It’s the final trading day of the month. Any intervention on Oct 30 would fall outside the MoF’s Oct reporting window, authorities would not have to disclose it until Nov 30. It is believed that this is something authorities might care about. The last two big interventions were April 30 and July 30/31 so it would fit the pattern.
• Tuesday, November 3 is a Tokyo holiday, so local banks are likely to have low staffing levels, so liquidity the following week will be limited.
• Fairly significant caveats. The July 31 & Sept 18 intervention/rate check episodes were probably forced by the price action. July 31 saw a post-meeting break of 160 (& this was also follow-up intervention from July 30) & Sept 18 saw a highly disproportionate FX response (USD/JPY shot up by >1% while rates barely moved).

Further below I present a table that shows the recent USDJPY intervention episodes. The first three met a speed condition—USDJPY was going up quickly. The last four meet a level condition, even if they don’t meet the speed condition—because USDJPY was at multi-year highs. Five out of six were close to a BOJ meeting. Three out of six were month end.

What do we have now? Speed condition? No. Level condition? No. BOJ and month-end? Yes. So, it would be an unorthodox choice for the MOF to come in here, but it’s not out of the question. The impact would be large + surprise factor high. I was bearish USDJPY and CADJPY anyway, so the non-zero intervention possibility is a nice kicker. I’m going to add another trade (one with a ton of correlation to my existing CADJPY trade, obviously): Buy 2-week 157 USDJPY put for ~30bps off 157.80 spot.

In spot the trade would be: short USDJPY with a stop at 159.36, but I have CADJPY spot already and the option has more leverage for a BOJ or MOF shock.

Here is the table I was talking about.

Brazil

Before Flávio Bolsonaro won round one of the Brazilian elections, USDBRL was trading around 5.25. That has to be a major point of interest now on the chart as we make our way back towards the idea that Brazil, might, just maybe be fine under a fourth Lula term. The chart is strange with the two huge gaps, but note the top of the old range is coming up soon.

I think buyers will be lined up 5.23/5.25 the first time down there and then perhaps we eventually return to the 5.05/5.23 range and it was all just a VAR shock / bad dream.

January 2035 DIs are still at 15% vs. 12.5% going in. The pre-election equilibrium there was 14.0%/14.5%.

Have a pleasant Tuesday.

https://en.wikipedia.org/wiki/Sorites_paradox

Imagine a heap of sand made up of a million grains. Remove one grain.  Still a heap.

Remove another grain of sand. Still a heap. Continue removing one grain at a time. Eventually, one grain remains. At what point did the heap stop being a heap?

It’s an example of the problem of vagueness, or the Sorites paradox. Words like rich, bald, tall, old, and heap have no objectively defined boundaries.

If someone with $10 million is rich, and losing one cent cannot make a rich person not rich, then by that logic someone with zero dollars must also be rich.

good luck ⇅ be nimble