Russia – Ukraine
New Week, Same Story
US CPI in Focus
It may be a new week but it certainly feels like the same story. Following FED member Brainard’s hawkish comments last week, markets continue to reprice in an incredibly hawkish FED. The current landscape seems quite straightforward: yields higher, risk markets lower and the USD higher. Yet, we are actually of the opposite view – at least on the day.
Since FED member Brainard’s comments last week the rates market has been on steroids with yields continuing to push higher across the curve – even the longer dated notes and thus providing stiff headwinds to growth stocks and crypto. With US CPI released later today, there is a real possibility the market has gotten ahead of itself. We feel the CPI number needs to be a monster print to continue the current moves we are seeing so risk/reward tells us being short USD’s and long risk on the day actually makes the most sense. Having been long USD/JPY for a while we have now flipped short for the day. Overnight, Japan’s Finance Minister also poured some cold water on the recent moves in USD/JPY saying the sudden moves in forex were undesirable and the government will monitor the impact of forex with vigilance.
Crypto markets have felt completely in step with the move in risk assets. Unsurprisingly with Nasdaq and other indices coming under pressure we have seen crypto pairs suffer. Over the past week we have seen the majors sell off circa 9% whilst the alts have suffered even greater. It has been disappointing to see both BTC and ETH trade back below $40,000 and $3,000 respectively. Have to admit, the extent of the sell off did catch us off guard. We have stuck our hand out here and started to re-buy some pairs, leaving room to add further on another dip. LUNA has been the largest loser, giving up c.28% from its highs. The outperformer has been DOGE which rallied on the back of the news that Musk has taken a large stake in twitter. Whilst we still like risk to rally over the quarter we have to acknowledge that risk is currently on fragile ground although a little risk has been priced out following Marine Le Pen’s worse than expected showing in Sunday’s French election first round.
As mentioned above, other markets continue to be dominated by the repricing of the rates markets. The USD index now sits above 100, while equities come under pressure as yields continue to soar. 10 year yields hit a 3 year high yesterday and this has taken USD/JPY north of 125.00. EUR/USD continues to look vulnerable with the rate differential between the US and Europe being stark and adding the uncertainty regarding the French election then EUR does feel very precarious. Whilst on the day we are short USD/JPY, it is tough to not be short EUR at the moment. Euro crosses continue to look soft and short EUR/GBP and EUR/CHF look attractive with targets of 0.8200 and 1.0000 looking achievable.
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