EUR
Yesterday, I stepped out of a meeting feeling as though the world had ended. Five inquiries from IBs followed, speculating if the Challenger layoff numbers, which had been released five hours earlier, were the cause. That alone says a lot about the current sentiment. The extent to which the labor market is softening remains uncertain, with Powell leaning toward a more optimistic outlook. However, there are undeniably concerning signals. While AI valuations continue to oscillate between bubble bursts and new deals daily, it’s not my area of expertise to comment on. Meanwhile, the ongoing government shutdown is dampening sentiment further, with flight cancellations adding to the pressure. Whether this accelerates a compromise is beyond my purview, but the window for resolution appears to be narrowing. At least Canadian payroll data offers some distraction today.
When you’re unsure what’s needed for your positions to succeed, it’s usually a sign to tread cautiously. After a slow bleed over the past few sessions, I decided to exit yesterday, closing euro and cable longs (our strategies cut GBP shorts overnight). It feels prudent to step back, reassess, and wait as market moves grow increasingly unpredictable.
The euro is attempting to find a base, with some rally sellers emerging from the corporate sector. With one-week volatility hitting a 4-handle earlier this week, yesterday’s 50-pip bounce felt disproportionately large. Even if the euro holds these levels, it’s unclear whether it signals a significant upward turn without a clear catalyst. Frankly, I’m tired of fighting the trend and see neutrality as a reasonable stance for now. The euro has just edged above its first resistance level, with 1.1580 looking like the next pivot point on short-term charts for those still holding on.
GBP
For GBP, as expected, the MPC meeting was underwhelming. Bailey took a cautious stance, making no assumptions and deferring to the upcoming Budget. The voter split leaned dovish, while the MPR forecasts were slightly more hawkish. Markets had chased GBP lower on Reeves’ speech, hoping for more, only to be disappointed. I’m beginning to wonder if we’ve passed peak pessimism regarding the Budget. As you know, I’ve stepped away from my long-held short sterling bias and even dabbled in longs yesterday. The key question now is whether Reeves can deliver a fiscal mix that gives the MPC confidence in achieving lower inflation and, indirectly, lower rates—a long-standing goal. It seems unlikely there will be sufficient clarity before the Budget’s delivery to sustain the heavy GBP shorts built up in recent weeks. Hence, my tactical bias leans toward being long GBP in the short term. Key levels to watch in cable are 1.3145/50 and 1.3250/60, while in EURGBP, 0.8750/65 will be critical. Net flows were modest yesterday, with short covering from SHFs continuing for a second day, though the DHF short covering trend stalled.
JPY
Risk-off sentiment saw yields and stocks reverse. Some attributed this to the Challenger report, but given that it was released early in London, any reaction would have been delayed and unlikely to drive such a move. The market’s current twists and turns are challenging to interpret, with too many unknown cross-currents preventing any clear theme from emerging. For now, it seems we’ll remain rangebound and tactical. Hedge funds were better buyers of JPY yesterday (1.7z) amid risk-off sentiment, though there was minimal activity from real money or local players. Tactically, I still prefer being short rather than long USDJPY but will wait to sell closer to 154, using 154.50 as a resistance level. Eyes on UMich data later today.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!