Maybe not yet but the day is coming sooner than you think!

Guess we’ll have to have a go ourselves!

1. Commodity Prices: Continue to drift lower from Covid-inspired peaks and are lower on both MoM and YoY basis. Impact = Negative.
2. Interest Rate Differential: Market expectations are mixed in short-term and medium term. Impact = Neutral.
3. Economic Performance: Recent jobs data and thawing relations with China give the Australian economy a slight edge in the short term. Impact: Positive.
4. Market Sentiment: Nothing clearcut but large Hedge Funds are said to be building USD long positions again, albeit more against the JPY than the AUD. Impact = Negative.

Based on this, and until something substantial changes, I’d be looking for a sideways/lower move over the next 3 months. I’m visualling a sideways channel with extremes at .6450-.7050. Not overly helpful I know as we are currently close to the middle but sometimes it helps to take a big picture view.

• USD/JPY: The prospect of increased intraday corporate flows, uncertainty surrounding the US debt ceiling and positional adjustment post BOJ all suggest that USD/JPY should see continuing and perhaps increasing intraday volatility. Stops are likely to be significant below 127.00 and may well be targeted but heavy real money buying is expected on any approach to 125.00. The topside again issued a sharp rejection at the 21-day MA but shorter term technical indicators remain in heavily oversold territory. In other words, it’s likely we will see tests of both sides of the market at some stage today.

• EUR/CHF: Buying dips towards .9875 gives the highest level of intraday confidence. Talk of trailing stops below .9900 but real money and option related buyers expected below.
• XAG/GBP: Matrix suggests this pair is oversold in the short term and entry levels around 19.00 should offer decent risk-reward to short-term traders.

On a day trading basis, overnight support at 1.1880 needs to be respected whilst a previous support level at 1.1960 could now develop into a pivot point. I will play this range during Asian trade with a definite willingness to take on more risk on the downside rather than the topside.

They favour playing this view via USD/JPY 2m 135/138 call spread. This view is in line with their fundamental view that the market is underpricing the Fed’s policy path allied to decent long term technical support near 130.50 and the fact that the market positioning of JPY has swung so significantly in recent weeks.

The US couldn’t afford their debt interest repayments when interest rates were at zero! Bit of an exaggeration but you know what I mean. Plus the political situation seems so divided, there seem to be more risks than upside for the USD in 2023.

With war raging in eastern Europe, I cannot justify being long European currencies to any significant extent and the JPY lost its ‘risk off’ status last year and I’m not sure where it’s headed.

So that leaves me two options; one risky, one less so.

The less risky option is to stay in my home currency, the AUD. There are undoubtedly some geo-political risks but the domestic political and financial situations are stable and for now, I’d rather be long AUD than any other of the majors.

The risky option is to build a portfolio of emerging currencies, particularly Asian and South American. Unfortunately I don’t have the energy or risk appetite anymore to manage the swings and roundabouts because this could well be the year of the underdog.

For now I am betting that a rebound top has been formed at 1.2450 and that we start to head lower again in cable. Levels between 1.2150/1.2250 provide the obvious short-term selling zones.

Support should initially be strong around 1.1650 but even a test of this level would confirm the rebound top to me and strengthen my ‘sell rally’ resolve.

Nevertheless, as a pure hedge against all that’s happening in the world, both financial and political, I can see a lot of value in a smallish Silver play which can be turned into something bigger should bullish momentum start to emerge.

The levels I am watching now are roughly 22.00/26.50. We can expect the usual suspects to be corralling the market whilst prices stay in this range. Technically I’m looking at a bottoming pattern to emerge (https://www.tradingview.com/chart/PoTdl7vs/) which would be confirmed by a break and hold above 27.00.

In the meantime, I’m happy to buy dips and play the range game but be ready for the 1% chance of the big upside play.

Now we are back around .93 which is almost exactly where we were this time last year. Where to from here?

The long term chart is in a sideways consolidation phase roughly between .88/1.02. I would play this range for the year ahead and try not to get too carried away in the noisy middle (like I did last year!)

In the short term I would favour buying dips for the simple reason that we are nearer to support levels than resistance levels.

Fundamentally I cannot see any strong reason for favouring either of these currencies so I will take my leads from the market until such time as something significant changes.

https://www.tradingview.com/chart/PoTdl7vs/

Speculative leveraged positioning in the CHF is quite moderate according to most reports I’ve read, with most reporting small net CHF short positions.

I’m taking a bit of a punt here in trying to pick the bottom of a sharp move but as we know, these reversal moves tend to be the most lucrative and quickest returns, once the trend stalls. I have no doubt that this trend will indeed reverse, and sharply at that, but getting the timing right is always fraught with danger.

The pairs I’m looking at are USD/CHF, AUD/CHF and GBP/CHF.

I’m definitely a bit early on USD/CHF but I’m keeping longs at a minimum and looking to add on dips towards strong technical support around .9300 or if/when bullish momentum returns to the short-term outlook.

AUD/CHF I am more comfortable with. I’ve also only got the minimum position here and I’m trading the short-term moves hoping to get on it when it starts moving higher. A break above .6750 will have me feeling more comfortable and I can then start adding on dips. A break below .6500 will tell me that my timing is off (again!)

GBP/CHF as always will be the riskiest one but potentially the most satisfying if it comes off. I’m watching the short term charts for any signs of a bottom forming. If it does I will be aggressively building longs looking for at least an 800 pip rally.

Be careful out there.

This level has formed 4 lows on the weekly chart and must be respected.

One way to get potential “bang-for-buck” in the FX space is to look for USD selling opportunities. USD/JPY looks like a likely candidate after a bit of a battle for supremacy at 138.00-50 has potentially been decided in the sellers favour. I’m looking to sell USD/JPY on the day, hoping for a swift 200-300 pip Friday clean-out of stale longs before the uptrend reemerges.

‘Tis the weeks before Christmas, and we all know what that means, position reduction in increasingly illiquid markets. In the FX markets, one of the biggest shifts in positioning in 2021 has been in USD/JPY, with a significant move from lows near 102.50 in early January to highs at 115.50 a few weeks ago. USD/JPY could well be renamed the ‘inflation expectations’ trade with a pinch of oil prices thrown in. With both of these variables moving in the same direction, it’s little wonder that USD/JPY has risen as well. This has happened in the face of regular ‘risk-off’ Covid-related headlines which goes to show just how powerful the trend has been. But, it’s December and traders/investors will be sorely tempted to book some profits or leave trailing stop-loss orders below the market so my instinct in this case is to play the contrarian card. The Fed has spoken and the news that rates will likely rise in the US sometime in mid-2022 is already written into the USD/JPY price so barring any major spikes in oil prices, I don’t really see any major short-term risk higher.

The market loves a possible Head&Shoulders formation so the trade I like here is to sell on the approach to 114.50 and add on a failure, looking for a move back towards 110.50.

Cable is probably my favourite pair to trade in the FX market as it usually gives you chances to trade out of bad positions. But I’ll say it again, it’s the weeks before Christmas and this pair can move very fast indeed. Macro positioning is still thought to be slightly long although we must always temper these types of market predictions with the fact that no-one actually knows the true extent of speculative positioning in the FX space. Recent UK economic data has been decent and with UK interest rates expected to start rising early in 2022, there should be some optimism for the pound but that’s not what the price action is telling us. The risk factors such as Covid/Omicron and supply chain worries seem to overly affect the GBP and the short-term risk for cable does seem to be to the downside.

I am looking to sell rallies towards 4-hr resistance near 1.3350 in expectation of a pre-Christmas sell-off below 1.30.

It would be logical, as I’m basically bearish GBP/JPY, that I would at the very least be neutral (if not bearish) on USD/CHF, but that’s not the case. This is one pair where we can be very confident of overall positioning. Despite the interest rate situation, we see massive amounts of hedging/security buying of CHF and this has been going on for years. The big question is, will this buying continue or will a black swan emerge and send this hot money scurrying back to where it came from. With this in the background, it’s impossible for me to be comfortable about being short USD/CHF so I basically leave it alone until such time as I see a good reason to buy it. Not very open minded I know, but we all live with our ingrained biases.

The AUD/USD touched .7000 last week on risk-off sentiment but has rebounded after the RBA statement and less-apocalyptic Omicron headlines. As we all do, I remain hopeful that this latest Covid strain is less severe than the last, but in regard to the RBA, I’m not sure that it’s overly AUD positive. QE does seem likely to be significantly tapered possibly as early as February 2022, but the overall tone of the statement was still dovish and with Australian household debt at increasingly high levels, it’s hard to see the RBA raising rates anytime soon.

The 21-day MA has often proven to be a very reliable indicator for the AUD/USD, so my preference is to sell rallies towards .7205 with expectations of a re-test of last weeks lows at .7000.

Finally to the EUR, which has been having a bit of a tough run of late across the board. This is despite increasing murmurings from the ECB that they have doubts about how quickly inflation could fall once the special Covid circumstances have changed. There are of course other factors at play including tensions with Russia regarding Ukraine so my preference is to avoid EUR/USD for now and possibly look for intraday trading opportunities in the EUR crosses.

A quick look at the long-term chart shows a bearish cross on the weekly MAs with resistance now firming at 1.16 and potential for a fall towards 1.09. Based on present risk, fundamental, technical and positioning factors, I find it unlikely that we will break out of this range in the next 3-6 months.

Last week’s weekly close below the 100-week MA will not inspire confidence amongst the GBP bulls. 1.3350 has proven to be a bit of a pivot in recent times so I will look selling opportunities there. There isn’t much in the way of strong technical support until the 1.25-1.27 window, another fact which will be lathering the bulls in sweat!

From a fundamental perspective, the short-term outlook for the UK economy and interest-rate cycle isn’t looking a whole lot different to any of the other major economies but any new supply-chain hiccups will definitely affect the GBP more than other currencies. This risk, alongside the volatile Covid landscape, would be enough to convince me to exit GBP longs until early 2022.