Good morning all
I guess it is this time of the month to look at the upcoming NFP number from tomorrow…. Of course a lot has changed in the last few weeks in terms of the perception of the FED…. And also post the Testimony that Chair Powell gave this week…. so this might take a bit of focus away from the NFP data in terms of the upside surprise… and would in theory put more risk to a lower number tomorrow, given how hawkish Chair Powell was or any of the recent FED speakers… BUT I also think… that it almost doesn’t matter at this point… the FED has shifted gear…. As I have said in the past… the FED has to buy insurance now NO MATTER what… and that insurance means… they have to finish Taper as quickly as possible… most likely be done by end of Q1 or End of April the latest… in order that possible rate hikes in June and July would be possible, if they see the need for that.
The FED has definitely increased the language as I suggested in recent weeks…. They just HAVE to…. whether they then will follow through on all elements, we have yet to see…. of course , just as the FED shifts gear… we learn of a new Covid variant that has upset markets at the back end of last week and early this week…. we do NOT yet know a lot of it, other than it seems to be more infectious BUT at the same time milder…. We are now awaiting the news from Moderna and Pfizer to tell us how well the current vaccine works vs the Virus… gut feel would be (I am NOT a scientist)… that it just cannot be ZERO…. And that is also what the Pfizer CEO said today again… he was even more optimistic than that and doesn’t see a reason why it should even see a drop in the efficiency….. those comments may be premature BUT I would assume that they at least understand the make up of the new Variant at this point, which may make such a comment probably valuable But we have to await the scientific proof….
Long story short…. This Variant would have to be worse than what we have gone through so far in 2020 in order to derail the FED…. The bar for that is quite high and we might just have to be patient and sit through a few volatile weeks BUT I would feel that the FED is on course to announce a faster pace on Taper in their December meeting… they might not yet talk about hikes in 2022 BUT I also think the FED will NOT push back on market pricing of 2 hikes in 2022…(1 less than early last week due to the Variant related moves in Fixed income).
Overall, as irritating as the Variant interruption was…. And it competing with the top story.. the FED story… I do think that the FED story will soon be back on TOP of the stories and the USD continues its rally into end of 2021 and continues in Q1 2022 and then we will review our USD view…. So far the USD view of 2021 worked just perfectly fine…. BULLISH USD all of 2021… and yes… it wasn’t easy at times… BUT EURUSD is 10 big figure lower… USDJPY is 12 big figure higher… DXY is 8% higher so really… I m quite happy about 2021.
Now to the good old NFP…. I do NOT think we need to be too complicated about… we expect something in the region of 560K vs 531K last… I will already be long some USD’s into the event from some core USD longs as I don’t think NFP matters at all for the overall trend in the USD.
What will make this NFP harder in terms of which USD to buy on a good one vs other times… mainly due to the weekend risk… hence if we touch USDJPY on a good one… it is recommended to maybe also sell the longs out into a rally before the end of day… flat for the weekend, just in case we get some bad Variant news (or Russia-Ukraine news) and then buy it again on Monday if we didn’t get any bad news.
Given that the FED has already shifted gear on the hawkish side.. I think the market would need to see a VERY STRONG number for the USD to really re-accelerate
NFP 400K TO 650K I will not bother too much and don’t see the need of an immediate trade
NFP 650K TO 850K I will be a buyer of USDJPY, USDCHF and seller of AUDUSD And or EURUSD whatever doesn’t gap much or is easy to touch
NFP 850k to 1mio+ I will buy USDJPY aggressively and USDCHF and sell EURUSD… and will square up USDJPY AND CHF before end of day
NFP SUB 400K I will just wait for people to sell the USD and will buy it…… I see ZERO reason to sell USD’s even on a weaker number…
This should be quite an easy game plan and remember… we have the weekend upon us post the data…. and we have a few story of concern out there…. Covid Variant and on the geopolitical side… Russia -Ukraine… both of course potential areas of negative news at the weekend and we do want to avoid the “mind the gap” Sunday night story…. If I end up long USDJPY and/or USDCHF.. I will be flat end of day and rebuy on Monday.
One word to USDCHF… do NOT ask me why EURCHF has dropped from 1.0900 to 1.0400 in the last many weeks… I see really no reason for it and maybe in the last few days we can argue risk worries… but before that… not sure we can really explain it….. this has led to a massive underperformance of USDCHF in this USD move…. the CHF should really weaken in 2022 when global interest rates start to move higher… and if we forget the Ukraine risk for a moment (assuming NOTHING is going to happen) …. USDCHF has the biggest catch up potential of any USD going into 2022… and I would replace USDJPY by USDCHF buying going forward
I will add some more thoughts ahead of the FED meeting but these are my current thoughts.
The information provided herein is being supplied in good faith based on information which we believe, but do not guarantee, to be accurate or complete. MacroBeat is not liable for any losses which are incurred from acting or not acting as a result of reading any of its publications. You acknowledge that you use the information provided at your own risk. This information is the personal view of MacroBeat and is NOT investment advice nor Research.