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.

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.

Overall signals are still mixed in my view; the metals look bullish but are rangebound, USD/JPY feels solidly well bid, cable feels like it should see a test of 1.45 and both EUR/USD and AUD/USD are still in medium-term bullish mode but looking tired (the technicians will call it ‘working through over-bought conditions’).

I am going to have another go at picking a turn in USD/CHF. I could go into a number of technical and fundamental reasons for this trade, but if I’m really honest with myself, I can probably look harder and find just as many reasons to be bearish. No, this is more of a feel trade, where I think the market overshot at various times and will eventually move back towards long-term neutral levels closer to 1.20. As we well know, opinions are irrelevant and the only thing that really matters is timing, but at some stage we will get ‘lucky’.

Lesson 2, is basically a repeat of every lesson from the last 35 years of FX trading, stay out of slow markets; they don’t suit my temperament. (I have never claimed to be a fast learner!)

Lesson 3, add Ian Dury on Spotify: https://www.youtube.com/watch?v=CIMNXogXnvE

I’m still in total disagreement with the majority of analysts out there who have been expecting a strong USD rally. Any structural liquidity issues, especially in emerging markets, which might be USD bullish will be more than outweighed by the fact that the collapse in global trade has led to a huge drop in demand for USD. Add in all sorts of uncertainties surrounding US Treasuries and I could not feel at all comfortable in holding USD for any length of time.

So what to trade?

USD/JPY: For now, be short and stay short for a test of 100.

AUD/USD: Any dips driven by AUD/JPY selling will be short-lived imho and I’m in dip-buying mode. The levels I’m watching are .6325/50 to begin with then .6260-80. Once the USD really turns, I’m expecting a 15% move higher in the AUD/USD.

Cable: Similar to AUD/USD, any dips will be driven by GBP/JPY selling and I feel that levels around 1.2250 will provide good value entry levels. That said, with cable we always need to be particularly vigilant as 300 pip over-shoots are almost the order of the day! I’m not leaving any orders, preferring to trade it on a day-by-day basis.

EUR/USD: The EUR looks pretty ordinary on most of the major crosses so I’m leaving it alone for now. Speculative positioning in some of the EUR pairs is getting towards ‘painful’ levels so no doubt we will get a very nasty stop-loss driven rally one of these days.

• AUD/USD: Any initial rallies to .7650 are likely to attract selling interest, first up, so I will lighten my position near there. I expect technical and market support to be extremely solid near .7570/90 so I will add or re-buy there, market conditions allowing of course.
• USD/JPY: 104.20/25 is expected to attract decent supply from Japanese corporates and that should prove toppy in early trade. Stale shorts will undoubtedly welcome any dips towards 103.60 and I expect this level to provide strong support during the Asian session.

Sorry no strong views or information on other majors.

It would seem that the market was significantly over-positioned in Gold, Silver and JPY in particular but I for one remain willing to take on the cable bears, if and when exhaustion starts to set in (so not yet!).

I’m not seeing any easy trades at the moment so I’m happy to sit and hope for some obvious opportunities when vol is high.

Market information sources are certainly not as clear as they once were but from what I can gather, there have been huge offers from Japanese corporates on all rallies over recent weeks. Two weeks ago I heard reports that a big US investment bank bought billions of USD above 104 and could have had billions more, with huge corporate offers every few pips. On Wednesday of this week we had more huge tranches of USD buying go through the market between 102.85/103.30 running into more very happy sellers.

We will have to wait a few weeks for more exact positioning analysis, but I suspect that large speculative JPY longs have been exiting the market ahead of the BOJ but this JPY selling has been gratefully soaked up by un-leveraged JPY buyers.

It seems to me that the topside in USD/JPY is pretty much capped for now and we could encounter some significant downside risk before Thursday’s decision.

I’m sticking with my contrarian long AUD/USD position but with the AUD struggling against the GBP and NZD for now, I may have to remain very patient.

Waiting for range edges with tight stop-reverse policies in place seems like the sensible way to play USD/JPY.

What’s of more interest to me is what happens when conditions aren’t fine. When the market is caught heavily on one side of a trade and receives a sudden shock (like the SNB). Bank dealing and prop desks aren’t there any more in any sort of numbers to pump liquidity in when the proverbial hits the fan. A big level will break, or big news will emerge, and we will see markets gap 5 times more than we’ve been used to. Where in the past bargain hunters would have entered a market 80 pips after a small black swan event, now they will wait for 400 pips, and where the market used to move 300 pips on a massive shock, now we can expect 10/15 big figure gaps!

The real danger trades for mine at the moment in the FX market are USD/JPY and AUD/USD which both could retrace extremely sharply at any time. Of course. as always, getting the timing right is the only thing that matters.

Regardless, any rallies towards 119.50 are excellent short-term selling opportunities in my view.

• USD/JPY is in sideways consolidation broadly between 115/120 and I think this could continue for quite a while yet as the market makes up its mind about the next big move. My bias is mildly bearish, simply based on levels of positioning, and I will happily sell any silly rallies.
• AUD/USD looks set to test .8000 and there will surely be stops aplenty below there. I will happily buy any exhaustive sell-offs as I still believe the AUD is harder than most in a market of soft currencies and additionally the market is already quite short.

For now the bulls are in control and support should be solid initially near 118.30. If this breaks then we can start considering a sell-small-rallies strategy. Initial highs at 118.85 provide the first line of resistance but a break above there could see an acceleration towards 119.50.

The latter is my preferred scenario for a good short entry level. I’m looking to start establishing a short position on any silly exhaustive spike or when a solid hourly top forms. In the meantime, trading the swings makes the most sense.

I’m not taking any positions but I’m definitely looking at trading the Yen crosses with a bearish intraday bias. These markets are made for swing traders, not position takers. It would not surprise me at all if USD/JPY were trading below 113.00 before the day is out, after all look where USD/CHF was yesterday!

I’m looking to sell into rallies towards 118.20 intraday with targets sub-117.00 later today.