FX weekly report
Weekly update and views on FX markets
Good day, MetaMacro readers!
Here’s your latest update on FX market flows, positioning, catalysts, and economic developments.
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US Treasury’s Bessent calls Japan’s Takaichi a ‘great ally’
Big-Name Earnings, Selloffs Highlight Busy Week on Wall Street
Israel to expand its control in West Bank, make settlers’ land seizures easier
UK’s Starmer refuses to heed calls to quit over Mandelson scandal
Germany indicts Ukrainian over parcel bomb allegations tied to Russia
ECB unlikely to react to a temporary dip below 2% inflation - Nagel
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FX Views
There has been significant chatter about “AI destroying billions in SaaS companies”. In the literal sense, billions can’t be destroyed in the stock market. The headline numbers used to incite this belief is the product of the price of a share and the number of shares of that company. Price is simply a representation of what market participants think something’s worth with respect to time. Repricing doesn’t equal destruction but a reevaluation of an assets worth.
The BOJ intervention on the 22nd of Jan looks futile as the yen has proceeded lower preintervention not only at the prospects of Sanae Takaichi’s victory in the elections. This just speeds up movement. Th direction is still the same
Takaichi’s victory or to be exact her policies also abate the uncertainty in Japanese markets generating more tail wind for the Nikkei, more bond issuance and ultimately more headwind for the yen.
Due to short positioning in the yen becoming crowded again, Japanese econ data will be closely watched to quickly detect changes that justifies reduction in expansionary fiscal policy. So far we haven't seen the changes and we believe it is unlikely we witness any form of substantial change in econ data to prompt a reduction in bond issuance. Her pledge to suspend the 8% consumption tax (sales tax) on food for two years following her landslide election win by cutting the consumption tax on food and beverages, which carries an estimated annual revenue loss of approximately ¥5 trillion ($31.9 billion) is to be enacted WITHOUT BOND ISSUANCE. Markets aren't buying the story neither are we.
Positioning in the dollar has revived from it's lows on the hopes of a dollar recovery.
Needless to say that hasn't worked out at all. The “Sell America” trade is still in play and as long as erratic fiscal polices are being made, we'll see money flow to more reliable pools. This of course doesn't mean significant sell of in ES. ES is rallying but by a lot less relative to other major indices. We've also seen significant rotation from tech to small caps
This theoretically should push the dollar up. But that isn't happening as the “sell America” trade can't be offset by a meagre rotation into small caps
Another market we've been observing is Canadian bond prices. There seem to be a at a standstill with less movement in higher durations
The only significant movement has been in the front end. All these have been happening while positioning shifts from negative to positive
The CAD index (Custom) is very close top the middle of it's range
The combination of all these factors increases the asymmetry to the downside. Market participants are oblivious to the possibility of a downside in the CAD as the BOC has concluded rate cuts and CAD underperforming other majors on average. This isn't bearish in of itself but makes a fall easier to occur.
We're also watching Australian markets reaction to the RBA hike and how the pound is responding to the dovish hold from the BOE. More to come soon
Thank you
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