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Trader Thoughts – bull trends developing throughout the USD pairs

Chris Weston
Head of Research
Jan 17, 2024
The focus from broad market players has been in part on developments in the Red Sea, but also on Fed gov Waller speech at the Brookings Institute. As many have seen in the price action, the aggregate view is that Waller's comments were hawkish, although in essence that’s only relative to the lofty expectations of cuts priced into interest rate and US swaps pricing – Gov Waller remains very much open-minded to cutting rates, but given his views lacked the urgency that the market craved, the result was that US Treasuries sold off and the USD built on its recent form.

We’ve seen a modest repricing in the US interest rate pricing, with the market pricing 157bp of cuts (down from 168bp on Friday) by December 24. and the implied probability of a cut in March has been massaged down to 69%. However, there has been a fair reaction across the US Treasury curve, notably in 10s where yields closed up 12bp and eying a push above the 5 Jan highs of 4.09%. We also see the US 2s vs 10s yield curve at -16bp, with a growing belief we see the spread turn positive for the first time since July 2022 – if we see an inverted US yield curve (i.e., 10yr Treasury yields are higher than 2yr yields), it will likely get great attention in the market.


Client activity has certainly picked up sharply, led by a broad rally in the USD and gold off by 1.4% and this was the first session where most forget the Christmas break and felt 2024 had finally kicked in.

We are seeing trends develop across the USD pairs, and this has big implications on a cross-asset basis as the world is not ready for a one-way move in the USD. I certainly don’t think this is a trend to be fighting at this juncture, as broad USD positioning is only small net long and the move higher has been somewhat of a stealth climb – CTAs and other systematic fast money players are yet to really beef up their USD long exposure and have only just been given a signal to buy-back USD shorts, so a further rise in the USD sees these rules-based players into USD longs in greater size and this is where strength begets strength.


The weakest links (vs the USD) have been versus the JPY, SEK, NZD, and AUD, although the MXN is now joining the USD party as well. USDJPY as always is a rates play, finding inspiration from the US-JP 10-year yield differential which has widened to 345bp, although spot has pulled away from where this spread implies. The cloud traders would have seen a close through the I-cloud which bodes well for those long, although resistance is being tested now with the 200-day MA marrying up nicely with the 61.8 fibo of the Nov-Dec.

Recall, short USDJPY was a top consensus trade for 2024, and once again we see these unwound quickly and it feels inconceivable that we could be considering BoJ/MoF verbal intervention is on the cards.

AUDUSD has fallen a long way from 0.6871 seen in late December, although on the day I favour selling rallies into 0.6625. When we look at the tape of China and HK equity it's hard to think we see a rally of that magnitude and moves in CHINAH is just ugly, the buyers are nowhere to be seen.

If long USDs, I’d want to see a USDCNH above 7.2200 and higher equity vol (a VIX above 15 would be helpful). Poor economic data from China today will be helpful to USD appreciation, but we now look ahead at UK CPI and US retail sales numbers – a retail sales print above 0.5% mom could see US bond yields rise further and see USD follow-through. Life across asset classes is far more interesting when we see a trending USD, especially if it results in higher market volatility – one to watch.

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