My 2 Cents (Thoughts and NFP Game Plan)
https://macrobeat.co.uk/my-thoughts/f/my-2-cents-thoughts-and-nfp-game-plan
Good Morning all
I have to admit… there were easier NFP’s to come up with a game plan…. We had some crazy few weeks around massive moves in the Bond market… miss pricing of hikes (as seen with BOE yesterday) a lot of pain in the market among those that were caught up in those massive moves in rates… and a very unclear market reaction post the FOMC.
The FOMC was dovish on the margin.. TAPER we knew… tick…. A tiny watering down of Transitory… also expected…. Pushing back on rates , not too aggressive but enough…. A lot of the “if’s” and “but’s” where dovish… it was definitely NOT a hawkish meeting and definitely NOT vs expectations BUT the USD did hang in there…. which on the day showed us.. the market isn’t really long USD… some of the USD buying we have seen in the run up, must have been short cover rather than exciting longs.. the market hasn’t embraced the USD all of 2021… and most players were bearish the USD right from the start of 2021… and they still are… BUT the USD net has only gone up during the year.. BUT I guess that is a different story…. But the market is still NOT really bullish the USD.
The USD has strengthened yesterday (ex USDJPY) but this to me was a fake USD rally… it was caused by a correction in the XXXJPY…. Triggered as parts of the RBA for AUDJPY the BOE for GBJPY but also we see that some of the bigger wining positions out there.. SHORT JPY and LONG CAD are getting reduced due to possibly the pain some took in their Bond books…. So it is RISK REDUCTION and NOT RISK OFF….. we have to wait and see into next week if this is turning into a real story or will just be a 1 or 2 day wonder as so many times this year and it is Friday and even a NFP Friday, so we hardly want to draw too many conclusions on a Friday (I never do).
RBA-Well Mrs Lagarde can just watch and learn… despite the RBA having had to surrender to the market in terms of the YCC, they still maintained the same party line and their forward guidance has indeed worked to bring yields back down and the AUD suffered as a result to it… job well done at this point I would say.
BOE-communication disaster…. UK rates were the ones that started all this mess in short term yields… the warning a few weeks ago that rates will have to go up started one of the biggest yield frenzies (shame for those younger traders that have NEVER seen inflation or rates move like this)… BUT it would have been the job of some of the MPC speakers to send a warning message last week that with 2 hikes priced for 2021 and many more for 2022… that the market has just overdone it BUT of course the crazy moves in the entire fixed income space has led to crazy rate hike expectations that even if you are worried about Inflation, would never to be reality… ECB Lagarde missed the point last week to push back.. RBA did stamp on it… the BOE did do NTG and BOE Bailey even had the courage to talk about it is NOT their job to guide the market (hmmm sorry, what is your job again??) anyway… the BOE had definitely hurt the market badly yesterday…. But since the RBA.. front end has already started to relaxed in many areas…. Even the breakeven or 5yr5yr stuff relaxes.. 2 indicators that used to be good to get the real idea of inflation worries and have become total useless during the days of this bond rout. I guess we just see how unique and challenging this entire Covid situation is and I must admit… it’s a lot easier I guess to complain about what CB’s do.. in the nature of the guy sitting in front of the TV and is the best football coach…. It is indeed VERY challenging… and maybe the only “mistake” in my eyes the FED has done and others… QE should have ended long ago… as most of the issues in employment or elsewhere are NOT to be solved by QE.. and that would NOT have made a difference to CPI but at least to market perceptions about the risk on rates.
OK, now comes the NFP part…. I thought I share my views above as it also shows that the NFP today isn’t very clear cut… at first.. will the market really bother that much after 2 weeks like the ones we had? Hard to tell.. but it would tell me that we need a big miss or a big beat for the market to bother… so my plan today is a lot simpler than it usually is… as there is a wide range I will NOT even bother to get involved.
NFP
We expect the NFP to come out around 400k with the last one at 194K (also look out for revisions of the prior month as usual)
Personally , I will not trade if the number is anywhere between 250k and 500k and will just wait for the dust to settle and move on with my life…
NFP 250-500k NO GO FOR ME
NFP SUB 250 SELL USDJPY
NFP 500-650 BUY USDJPY, BUY USDCHF MODERATE
NFP 650-850 BUY USDJPY, BUY USDCHF, MORE AGGRESSIVE
NFP 850UP BUY ANY USD THAT I CAN GET MY HAND ON AND I WILL USE BOTH HANDS FOR THAT
A word on USDCAD…. The CAD bulls must be furious that the CAD didn’t see any follow through post the BOC surprise move to stop QE… we had a 100 pip drop on the day but a recovery almost as fast… and we have seen a slow CAD weakness ever since… this is VERY BAD news for CAD… it should have performed better post BOC and it didn’t.. that is quite telling… the market is VERY LONG CAD it is one of the Darling’s out there…..
We have not only US payrolls today but CAD too.. so one of the double whammy days…. Last CAD payroll was super strong and they have been rather volatile.. so odds are to get a weaker one today… so USDCAD is right up there on my radar BUT of course we have to WATCH 2 payrolls.
A strong US vs a weak CAD payroll and I could see USDCAD doing some real damage on the topside and may well be the start of a bigger squeeze due to positioning… a break of the 1.2480 area would probably be the accelerator post payrolls… if the opposite happens weak US and strong CAD… I have ZERO interest to trade USDCAD so will ONLY trade topside in USDCAD
I hope my views may help later today and wish you all the luck!
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