Took profit on USDJPY, and I like NOKSEK higher from here.
Riddle:
What comes next in this pattern:
- Cherry
- Strawberry
- Orange
- Apple
- ________
subscriber-only
USDJPY and NOKSEK
Current Views
Buy 3-month 1.01/1.04
NOKSEK call spread for
~67bps off 0.9925 spot
05JAN USDJPY call 142.50
for ~30bps off 141.75 spot
Took profit / hedged at 143.30
January 4, 2024
USDJPY
If you think NFP will be weak, this is the dream entry point for USDJPY, especially as ADP and Initial Claims have people leaning towards stronger data. See chart and please note:
- 145.00 was the level going into 13DEC CPI. That level rhymes with the gap top in EURUSD, which was 1.0870/90. EURUSD low yesterday was 1.0894.
- That level was the high on December 19 when USDJPY decoupled from rates and did a mutant moonshot like it’s doing right now. The blue line in the chart is the US 10-year yield.
- USDJPY is 1.5% above its 100-hour MA. It tends to fail in the 1.6%/1.7% above 100-hour area.
Short here with a stop at 145.26 makes sense for believers in weak NFP. Or, buy 1-week 143’s because this thing is flying around. I am not sure what I think about NFP yet, so I’m not ready to pull the trigger. I’m also a bit sad I overreacted to the QT mention in FOMC Minutes yesterday, although oddly switching out of long USDJPY into short USD via GBPUSD or USDNOK wasn’t horrible.
USDJPY hourly, with US 10-year yield and deviation from 100-hour MA
I really don’t know what I think of payrolls yet, but I’m pointing this out in case you are bearish USDJPY and have not been scathed by this rally. If that’s the case, you could view this entry point as a gift.
Separate, but related… An interesting observation from my friend Dave here:
In Japan, only about 18% of household financial assets were held in stocks and investment trusts as of the end of September, according to Bank of Japan data released in December.
Japan revamped its NISA tax-free stock investment program for individuals on Monday, reinforcing the country’s efforts to encourage a shift from savings to investments in the equities market.
https://www.japantimes.co.jp/business/2024/01/01/markets/nisa-revamped-investment-japan/
Unhedged Nikkei!
NOKSEK
The Norges bank has been selling NOK for ages while the Riksbank has been buying SEK since late September 2023. This (and other factors probably) pushed NOKSEK from 1.04 to 0.95 between the day the Riksbank started, and the lows printed December 13.
Post that date, the Norges hiked rates unexpectedly, and they reduced the amount of NOK they plan to sell. The amount had been $140 million USD per day and it’s now $35 million per day. Chart here shows the evolution of the currency purchases. The move was a surprise.
Meanwhile, while the Riksbank announces their SEK purchases with a 2-week lag, it’s pretty easy to guess where they’re at. They’re pretty much done selling EURSEK and USDSEK. This next chart uses data from the Riksbank. The solid lines represent their actual data, and the dotted lines are my extrapolation using weekly averages. As you can see, the big program to sell USDSEK ends right around today.
Cumulative FX sales by the Riksbank
I like NOKSEK higher primarily based on this change in the flow dynamic, but also because the double play by Norway to hike rates and slow FX purchases sends a clear signal that they are taking the weak currency seriously and will remain tight until it comes down. In contrast, Sweden faces similarly high inflation but is more likely to be concerned about housing leverage and other financial stability issues. They are more likely to follow the ECB when Lagarde decides to cut. HT ex-famous-DJ from Toronto for this idea.
Here’s the chart, with the major events marked.
NOKSEK Hourly, June 2023 to now
The simple play is to buy 3-month call spreads topside because spot can be really boring and requires immense patience to hold and I do not have such patience. This idea is bigger picture than my normal tactical views.
3-month 1.0100/1.0400 call spreads will give you good leverage. Risking about 65bps to make 300bps. I like this trade, I think it’s 5-star, but I’m not leaving it in the sidebar after today due to the 3-month nature—it will clog up the sidebar for too long. Selling the 1.04 cheapens the play, gives you more leverage, and acknowledges that a return to key resistance at 1.04 would represent nice symmetry.
Long spot with a stop at 0.9730 should also work.
Final Thoughts
This year is jam packed with elections so I will try to keep on top of the narratives as they develop.
US election bettors have Trump at 38%, Biden at 29%, Haley at 10%, Newsom at 8%, and Kennedy 4%.
https://www.realclearpolitics.com/elections/betting-odds/2024/president/
Have an 8-bit day.
good luck ⇅ be nimble
“If Pac-Man had affected us as kids, we’d all be running around in dark rooms, munching pills and listening to repetitive electronic music.”
― Marcus Brigstocke
Because the original Pac-Man game stores the level counter as an 8-bit integer, an overflow error occurs when reaching level 256. That is why there are 255 levels in Pac-Man.
