Trade the Extremes
USD Gives Up Some of its Gains
There is not too much to add from yesterday’s piece sadly. The main talking point was Powell reiterating the FED’s stance on inflation. Powell said the FED won’t hesitate to tighten policy beyond neutral to curb inflation. Stock’s stalled their recent rise and the USD bounced.
We spoke yesterday of how GBP/USD was ripe for a position squeeze and we saw that yesterday with GBP trading up to our sell zone of 1.2500. In line with our ‘trade the extremes’ view we were happy to sell and have taken profit this morning. Whilst Powell’s comments were hawkish, I will say the reaction in assets have been somewhat muted. The last few months have seen any hawkish comment from the FED jumped on with equities (risk) selling off, yields jumping and the USD soaring. The price action in equities and FX has us thinking the market may have reached peak FED hawkishness and now the bar may be quite high to see a sustained sell off in risk. We remain tentatively constructive risk and still feel the next 10% move will be higher than lower. Saying that, we do not expect it to be a straight line move and things will remain whippy.
Crypto markets have stabilised which is the good news. However, they aren’t exactly trading as if risk is firmly back on. BTC struggles to hold above $30k whilst ETH can’t make much headway above $2100. The market has been burned and will be tentative for a while to put much risk on crypto. It is back to trading in line with the general risk sentiment so until that notably improves crypto will consolidate in this lower range it finds itself in. period of calm and cross fingers we get it.
On the day we are pretty light on positions at the moment. We are looking to reinitiate longs in GBP/USD but aren’t happy at these current levels and will look for a further dip to buy into. Continue to trade the extremes…
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