Trade the Extremes
Terra/LUNA Still Under Significant Pressure
USD Remains Elevated
Wall Street advanced yesterday giving the markets some much needed respite from the relentless pressure it has been under of late. Asian stocks followed suit as data highlighted that the number of covid cases in China were in decline.
There were a couple of FED officials hitting the wires yesterday reinforcing the message that 50bps hikes are on the table for June and July. Cleveland Fed President Loretta Mester commented that 75bps hikes aren’t being ruled out. The focus of today will be US CPI. It is forecasted to have come off a tad so any print higher than expectations and we would expect the rout in bond and equity markets to resume.
Despite the rally in stocks yesterday, FX has been somewhat muted. The USD still remains near its highs with the pullback not materialising as we expected on the back of risk rallying. If US CPI comes out as expected we would expect the USD to have a look lower, if CPI is higher than expected then the USD will fly. A softer than expected print and the USD should have an extended look lower as risk rallies.
We were contemplating yesterday if LUNA was a buy at $36 – safe to say it wasn’t. We are witnessing the largest run on a stablecoin and left wondering when and how this all ends. UST sub 50c and LUNA sub $4 is staggering. The ‘Soros style’ attack has decimated both Terra and Luna. It would take a brave person to fight this move….enter this desk. We have decided to stick our hands out and buy both Terra and Luna. We of course aren’t married to this position and not risking a huge amount but more looking for a relief rally. All things considered, ETH and BTC are holding up remarkably well.
Saying that, we are in an environment where crypto (and general risk assets) will struggle to rally. BTC and ETH trade toward the bottom end of their recent ranges. BTC needs to hold $29000 and ETH needs to hold $2100 if we are to have any chance of crypto rallying. A softer inflation print may just provide markets with some much needed respite but a higher print may just see the support levels mentioned above taken out. Despite pur hail mary positions in UST and LUNA, the general consensus is to avoid ALTS at the moment. Until risk sentiment improves notably BTC and ETH feel like the sensible plays at the moment.
Elsewhere, we have also taken contrarian views in FX. We are happy to sit short USD/JPY on the day. Equities are holding in and we can see the USD giving up some of its recent gains. We have squared up both our EUR and GBP shorts as wondering if we have hit peak pessimism, especially in the latter. This could all change though depending on today’s CPI print. Fairly binary here, a stronger than expected print and we will rush to get ourselves long of USD, an as expected or softer print and we will remain short USDs and potentially look to add. If Luna and Terra continues their move south today then you may not see a morning commentary tomorrow as we will be busy crying into our bowls of cereal.
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