Weekly Note 2022.09.26

To B(TD) or not B(TD)?

Crazy scenes this morning as the USD wrecking ball continues to swing at the currency market, most notably Cable which dropped some 5 handles in opening trade.

This took me back to the pandemic crash where cable dropped some 15+ handles in the space of week where I decided to buy into the overextended move for the reversion trade, and one which paid off. Currently, this GBPUSD move is very overextended, if not for just the very short-term, and I’ve decided to buy the lows this morning along with small nibbles in NQ and AUDUSD. I’ve now bagged some of the Cable move as there is quite a bit of air between 1.0550 (at the time of writing) and the lows below 1.0400.

Overall, I’m looking to play the tactical bounce as I think the broad market is due some relief on the idea that US yields and USD could be near their short-term highs around current levels. Also there is potential for the bounce to be a strong one given some stretched positioning and market gamma in US equities.

May have it completely wrong (again) but with some shrewd intra-day trading, can’t see why I can’t keep the PnL in check given my recent performance where I’ve been mostly wrong too.



  • War, Inflation Knock World Economy Off Balance — The global economy is sputtering and financial markets are flashing red, reflecting a sense on Wall Street that a sharper slowdown in worldwide economic activity is likely inevitable (WSJ). Stock futures fall as investors prepare for the S&P 500 to test its June low (CNBC). Stocks could continue skittish trading until interest rate move calms down (CNBC). Buying the Stock-Market Dip Is Backfiring. Investors Keep Piling In Anyway — Share prices continue to plunge, denting a strategy that soared in popularity over the past decade (WSJ). Goldman Slashes S&P 500 Target Citing Higher Fed Rates Path — S&P 500 Index year-end target cut to 3,600, implying 4.2% drop, Risks skewed to downside even after forecast revision: Kostin (BBG). BofA Says Cash Is King as Investor Pessimism Hits 2008-Era High — Cash sees weekly inflows; stocks, bonds have outflows: BofA, Sentiment ‘unquestionably’ worst since global financial crisis (BBG).
  • Slide in Transportation Stocks Flashes Warning About Economy — DJ Transportation Average is down 12% this month, roughly double the declines by the S&P 500 and Dow industrials (WSJ). Tech Stocks Face Another 10% Drop or More as Strong Dollar Hits Profits — Tech companies are likely to miss earnings estimates because inflation and strong dollar eat into their profits (BBG). Will This Be Another ‘Lost Decade’ for the Stock Market? — After four decades of incredible performance, the stock market could be at the beginning of a lost decade. But the stock market goes through “lost decades,” periods where returns are hard to come by. The most recent occurred from the dot-com peak in 2000 through 2013, when the stock market finally broke out in a meaningful way (Barrons).
  • The Great Bond Bubble Is ‘Poof, Gone’ in Worst Year Since 1949 — Bonds keep sliding in the face of aggressive central banks, Losses mount as Fed vows to pull inflation down to 2% target (BBG). Central Banks May Stoke Risks by Raising Interest Rates Together — Central banks around the world are raising their key interest rates in the most widespread tightening of monetary policy on record. Some economists fear they may go too far if they don’t take into account their collective impact on global demand (WSJ). Fed’s Bostic Says US Could Have a ‘Relatively Orderly’ Slowdown — Soft landing will be hard to achieve as Fed tackles inflation, sees job losses even while limiting pain (BBG).
  • Middle-Income Households Feel Bigger Pinch From Inflation — Congressional Budget Office says price increases have outpaced income gains for midlevel households (WSJ). After Years of Low Mortgage Rates, Home Sellers Are Scarce — Homeowners wearing the ‘golden handcuffs’ of low mortgage costs are reluctant to sell their homes now that rates are much higher (WSJ). John Paulson on Frothy US Housing Market: This Time Is Different — Unlike subprime era, financial system is not at risk, he says (BBG). US Is Inflating Its Debt Away After Unprecedented Spending Binge — When measured against the economy, America’s debt is set to post the biggest drop in at least two decades (BBG).


  • UK’s Biggest Tax Cuts Since 1972 Trigger Crash in Pound, Bonds — Package costing £161 billion is aimed at stimulating economy, Economists say measures will add to inflation and debt (BBG). Pound Plunges to Record Low as Kwarteng Signals More Tax Cuts — plunged 4.7% to a record low after Kwasi Kwarteng vowed to press on with more tax cuts, even as financial markets delivered a damning verdict on the new Chancellor of the Exchequer’s fiscal policies (BBG). Pound-Dollar Parity Now a One-in-Four Chance, According to Options Bets — Sterling drops toward $1.10 handle and bearish wagers pick up, UK bonds plunge at the prospect of more fiscal stimulus (BBG). In Brexit’s Wake, U.K. Still Lacks a U.S. Trade Deal — A pact between London and Washington was supposed to be the jewel in a post-Brexit crown (WSJ)
  • SNB Chief Jordan Hints at Further Interest-Rate Hikes If Needed — Inflation in Switzerland increased ‘much more’ than expected, Thomas Jordan speaks day after SNB hiked by 75 basis points (BBG). ECB’s Nagel Says More Interest-Rate Hikes Will Be Necessary — Inflation fight brings burdens with it, Bundesbank chief says, Remarks suggest hawkish view even in face of growth risks (BBG).
  • Italian Right Is On Course to Win Elections — Giorgia Meloni won a clear majority in Sunday’s Italian election, setting herself up to become the country’s first female prime minister at the head of the most right-wing government since World War II (WSJ).


  • Russia Pushes Annexation; Putin May Speak Friday — Kremlin may complete the annexation of the four occupied regions of Ukraine as soon as next week, just days after what the United Nations has denounced as illegal votes to join Russia. President Vladimir Putin may make his annual address to parliament Friday, a state news agency reported, days after the so-called referendums are due to end (BBG). Kyiv’s western allies boost nuclear deterrence after Putin’s threats — White House security adviser Jake Sullivan says US is taking the threat ‘deadly seriously’. “If he thinks the threat is going to intimidate Ukraine into capitulating or giving up 20 per cent of its territory, or intimidate the rest of us away from helping Ukraine, the opposite has happened,” (FT).
  • Russians Seek to Mount Resistance to Putin as Mobilization Gears Up — Some activists are staying in the country and protesting, despite threat of prison or a draft summons that could send them to the front lines (WSJ). Protests Over Russia’s Draft Persist, as Authorities Concede Mobilization Errors — Defiance lingers among ethnic minorities who make up a large portion of the troops sent to battle in Ukraine (WSJ).
  • Pushing East of Kupyansk, Ukrainian Forces Expand Offensive — Russian shelling turns neighborhoods into rubble as Ukrainians advance in urban combat (WSJ). Ukraine Downs 12 Russian Aircraft, Boosting Battlefield Pressure on Moscow — Among aircraft shot down are eight Iran-made drones that Russia has deployed in strikes against Odessa and other targets (WSJ).


  • Crisis Level Risks Loom in Asia as Major Currencies Crack — Heavyweights yen, yuan both tumble as Fed hikes boost dollar, Rapid slide creates deadweight for other Asia currencies: BNY (BBG).
  • BOJ Boosts Regular Bond Buying Operation as Yield Nears Ceiling — Central bank to buy 550 billion yen of five-to-10-year notes, up from the 500 billion yen originally planned, yield on Japan’s 10-year note close to tolerated 0.25% level (BBG).
  • Taiwan Dollar Depreciates to Weakest Level Since January 2017 — Foreigners sell over $43 billion of Taiwan shares this year, Widening rate gap with US drives outflows from Taiwan (BBG).
  • Won’s Weakening Risks Amplifying Inflation, Bank of Korea Says — Central bank pledges it will boost market stability if needed. Odds of another outsized rate hike increase after Fed’s move (BBG). Korea’s Won Not Facing Woes Seen in Earlier Crises, Fin Min Says — Current situation is different from 1997 or 2008 crisis, No urgency to pursue currency swap with US now: Choo (BBG).
  • Yuan Weakens to Near Trading Band Limit as Pressure Mounts — Onshore spot inches away from hitting 2% below daily fix, Not much can stop yuan besides intervention: Julius Baer (BBG). China Reinstates Risk Reserves for Derivatives to Support Yuan — PBOC will impose a risk reserve requirement of 20% on banks’ foreign-exchange forward sales to clients. Move makes it costly to buy foreign currencies via derivatives. The reserve ratio has been zero since 2020 (BBG).
  • Hong Kong Businesses Push For Full Reopening to Revive City — City removes hotel quarantine, pre-flight PCR test requirement. Move seen as insufficient to attract tourists, boost economy (BBG).
  • IMF bailouts hit record high as global economic outlook worsens — Fund hands out $140bn in loans as interest rate rises push up countries’ borrowing costs (FT).


Global equity markets took another big hit last week with the MSCI World ex-US back to the lows seen in December 2018, which coincidentally, marked the last hike of the then Fed’s tightening cycle. MSCI Emerging Markets ex-China is also back to a historical support area.

DAX closed at the 50 fib retracement last week and SPX near the June lows, and where sentiment was last weakest...

AAII survey shows sentiment is now more bearish than it was back in June, and likely to be even more bearish after the sell-off continued after the Sep-21st report date.

If taking a contrarian view on sentiment being somewhat max-bearish, current levels seem as good as any for equities to find short-term relief.

SPX negative gamma is back to levels last seen in June and back in…

extreme territory at the bottom decile with a percentage rank of 7%.

Extreme negative gamma exposure levels is potentially fuel for a major short covering/squeeze rally.

Furthermore, all 4 major US equity benchmarks are showing a DeMark Sequential 9 count buy signals.


Bloomberg index is also back to the July lows driven by the collapse in Energy prices. Precious metals also driven to new lows against a higher US rates and stronger USD.

Crude and Gold fairly oversold in particular and around levels to watch.

Surging US rates and Dollar would need to ease to take pressure on commodities, as well on broad risk.


Bonds continued to sell-off continued last week which, to contrast the nominal (left) and real yield (right) curves, largely appears to be driven by higher front-end rates and the selling in inflation expectations as markets begin to take the Fed’s words more seriously.

Would take a big softening in US data this week to stop the bleed in bonds.

We do have PCE data at the end of the week and considering that Retail control data back in mid-September, not only missed expectations but also saw a downward revision to the prior month, this could be what’s needed for the bond markets to relax for the time being.

Looking at US bond futures, we’ve reached a sequential 9 count here also, and should it decide to pivot to the upside later around the PCE data, it could very well produce the 13 count.


It’s all about the USD and US rates at the moment as well as the relative strength of the US economy against others. The USD on index view is back to levels last seen in December of 2002.

I generally like the AUDUSD and possibly USDCAD to express the pro-risk trade. There has been chatter of the China National Team buying in Chinese equities and I expect more news of policy stimulus moves coming out of the China going forward.

CitiFX Economic Surprise Index

For CAD, data has been surprising to the downside for quite some time, and with Oil also oversold for the near-term, I think this could be a good tactical choice also.

I also like GBPUSD as a tactical choice. There is a lot of fresh shorts in this pair along with some heavy put option bets where there could be a lot of dealer hedges that could unwind as it sold off. And as I come to the end of this weekly note, I’ve banked most of my Cable long for 200+ pips.

That’s all for now. Have a safe week trading.



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