EUR

Navigating the market on a daily basis has become increasingly challenging. Honestly, I’m not even sure what I’m looking for these days—it’s all quite noisy. Deleveraging in other asset classes remains widespread and seems to be dragging on longer than previous corrections. While there’s some risk-off sentiment in FX markets, the level of panic appears muted. This is likely because market participants have been lacking conviction for a while, and as a result, capital allocated to even popular trades feels lighter than usual.

I’m managing a few positions at the moment. I’m staying short GBP ahead of this week’s data, still holding a short USDZAR position despite the challenging price action since breaking 17, and I’ve got a small short EURSEK position with room to add. I suspect patience will be needed with this one, possibly into Q1. I’ve reduced my NZD longs, given its impressive outperformance recently (AUDNZD has corrected significantly).

There’s not much to say about the euro—it remains rangebound with uninspiring price action and flow dynamics. I’m considering tactically buying this dip ahead of Nvidia earnings, payrolls, and PMIs for a few reasons. Nvidia’s earnings could be self-fulfilling in the current environment, with any risk-off sentiment likely reflecting U.S. economic challenges rather than broad-based dollar strength. A weak September payrolls print could signal further shutdown-driven weakness, while an inline or stronger print may be seen as stale, with limited market reaction. European PMIs should at least support recent upward momentum. However, this is more of a short-term trading mindset—I’m not aiming for a big move here. Looking ahead to next year, I’ll need to reassess the bigger picture.

GBP

GBP had a better day yesterday, along with Gilts, as the doom-laden media narrative gave way to some optimism. The perception that Rachel Reeves may have been bailed out by the OBR is gaining traction. While it’s fair to criticize the OBR and acknowledge that economic challenges are looming, the timing remains uncertain, especially as they move to a yearly reassessment cadence. It’s also worth noting that Reeves and Starmer face significant challenges, as evidenced by a YouGov poll showing 45% of Labour voters think Starmer should step down before the next election—half of them calling for an immediate resignation. Still, a leadership revolt seems unlikely before May’s local elections. The focus now shifts to the dovish BoE narrative, which may be unfolding. The key question is whether this transition can occur smoothly without significant pain or position unwinding. Tomorrow’s CPI and Friday’s PMI will offer some clarity. I plan to sell GBP rallies today (targets: 1.3250 and 0.8770) but may look to re-enter positions early tomorrow if conditions cool off. Net flows yesterday were unremarkable.

JPY

On the Japanese front, Ueda met with Takaichi this morning, but there wasn’t much to report. The market briefly reacted to news that FX was discussed, but it’s unlikely the conversation was in-depth, as the MoF wasn’t present. Katayama was active on the wires again, maintaining a level 3 stance, and BoJ December pricing is now at 7bp. In short, there’s little to see here from Japan for now. The U.S. remains more compelling, with the tech sell-off gathering momentum as the S&P closed below its 50-day moving average for the first time since May. Meanwhile, crypto markets are looking increasingly precarious. Regarding EURJPY, it’s still testing all-time highs around 180—perhaps that was the FX topic discussed earlier! As you can tell, trading JPY remains exceedingly difficult, especially with snippets of historical U.S. data being released unexpectedly (e.g., this morning’s IJCs). Personally, I don’t believe this is the definitive bursting of the tech bubble. I think dips in USDJPY should be bought as the MoF test continues. Anything near the 153 handle looks like a fade to me. Yesterday, JPY was the top-sold currency across all tracked segments (SHFs and DHFs).