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  • Writer's pictureMike Paterson

Variable risk sentiment greets a new week

Monday 27 September 2021

Variable risk tones still prevailing this morning and some equity retreat notable in early European trading from Asian highs but off their lows and that's being reflected in FX pairs.

Menwhile in Germany SPD leader Scholz is claiming the early election victory but still likely to be a coalition outcome in due course with the FPD and Greens in the mix. CDU/CSU seemingly out of the equation but this process will take a while yet and Metkel will be around in charge until Xmas. The uncertainty though is providing some Euro supply as the new week gets underway, justifying my bearish tones

With month-end looming the preliminary Citi estimate of month-end FX hedge rebalancing flows points to moderate USD buying, particularly against JPY. "Following seven months of uninterrupted gains, US equities have declined in September. We estimate both international equity and bond investors to be net USD buyers this month-end, although equity hedge rebalancing flows explain about 95% of the signal. The model suggests USD buying even against currencies like CHF and AUD where local assets have done even worse, because we assume foreigners hold more US assets and tend to hedge them to a greater degree. The signal to buy USD and sell JPY is the most significant at 1.12 standard deviations. This is because of strong gains in Japanese equities which mean that foreigners will likely need to sell JPY to hedge their gains, adding to domestic JPY selling needs to reduce foreign asset hedges."

So the feast/famine/variable-risk roller coaster ride continues and amid all this uncertainty I will repeat that patience and discipline in trading are key, as ever, and not being greedy.

GBPUSD: A good hold of 1.3655-60 in the latest retreat from 1.3750 and pips duly banked per my tweets on Friday. I hope you shared my patience. On the rise again now as risk firms a little and EURGBP retreats. EURGBP: Looking to test good support down at 0.8530 again in the wake of some general EUR supply post-German election. GBPJPY: Good support at 151.00 still and now 151.50 amid the firmer GBP/risk double-whammy and testing 151.85 offers again but with sellers still poised when risk sentiment fades.

I remain a GBP rally seller across the pairs but being patient as ever. These are risk sentiment markets and ever fickle so good/tight position management essential.

EURUSD: 1.1730 now providing a cap but holding 1.1680 as I type amid the German election fall-out.The pair still finds itself in the middle of cross-flow action and variable risk plays not to mention the ongoing option interest. USDJPY: We've been up to look at 111.00 amid the firmer risk tones after finding a base at 110.60. EURJPY: Failing at 130.00 amid the general supply post-German election but underpinned by some JPY risk-on supply. USDCHF: Finding a base at 0.9220 again on Friday and now 0.9260 as EURUSD retreats and with the SNB ever vigiliant as EURCHF holds 1.0840 again. EURCHF: Holding 1.0840 again with SNB shadow ever present.

AUDUSD: A good hold at 0.7340 in the latest retreat but equally unable to get back above 0.7300. USDCAD: Yesterday saw further falls in the subsequent retreat on the fimer risk/oil tones and CADJPY buying but held 1.2640 amid the option interest down there but failing at 1.2700 so far as I type.

Time for a Ryder Cup rethink after being totally outplayed by the new USA brigade. Time to replace our old guard with fresh fces too.

Let's continue to be careful out there in all things. Staying safe must be our main priority still.

Interbank rates: 08.25 BST

GBPUSD 1.3686

EURUSD 1.1712

EURGBP 0.8556

GBPEUR 1.1686

GBPCAD 1.7270

GBPHKD 10.6645

GBPJPY 151.41

GBPZAR 20.5900

USDJPY 110.63

EURJPY 129.56

EURCHF 1.0850

EURHKD 9.1260

AUDUSD 0.7279

USDCAD 1.2612

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