Daily Fix: The ultimate week ahead playbook

Head of Research

Oct 11, 2019

With signs of constructive dialogue between Boris Johnson and his Irish counterpart Varadkar, amid a reluctance to be short risk ahead of tonight’s meeting between Trump and Chinese VP Liu, we’ve seen GBP flying, equities higher, and the JPY offered. GBPJPY has been the superstar of G10, with the break of the bear channel a sight to behold, as has been the move in UK gilts, where a 12bp move would have hurt a few in the institutional world.

USDJPY has seen good flow, benefiting from Trump talking up proceedings with China. The pair’s holding the 108-level. Meanwhile, USDTRY has also had good interest, although traders are loath to be long for any great period of time given the cost of carry.

There is a lot to play for still and the script can change at any moment in Brexit, so it’s tough staying long GBP for any period of time. It does feel that ahead of the 19th October that traders will be buyers of weakness, but it’s risky and given the IV, I would be keeping my position size to a minimum.

My weekly volatility scan has GBPUSD one-week implied vol moving to the top of the pack, which should not surprise ahead of next week’s EU summit and a potential Article 50 extension. We’ve seen options traders piling into GBP upside structures, where we can see GBPUSD one-week risk reversals moving into the 96th percentile of the 12-month range. This highlights a sizeable skew in call buying over puts and demonstrates that the market feels the path of least resistance over the week is higher.

I cover these dynamics in the video, with a focus on positioning, implied moves and event risk that will drive markets next week. I remain fixated on USDCNH, especially as it is driving AUDUSD so intently. Meanwhile, I continue to watch EU inflation expectations, as they have moved from near 1% to currently sit at 1.16%, which are driving German bund yields, in turn promoting a better bid in EURUSD.

One aspect I miss out in the week ahead video is the fact that next week is the start of US Q3 earnings, which kicks off in earnest with JPM, C, GS and WFC hitting the street with numbers. Pepperstone is offering top US shares as a CFD, where we can trade both the cash and post-market session. For traders interested in this space, I have put some thoughts together here

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