Trader Insights – Fed Gov Waller the risk for traders ahead

Chris Weston
We close out another US session with some signs of range expansion (S&P500 futures traded a 37-handle range) and sellers getting a better say - a late session dive saw traders point to a $5b MOC (market on close) order taking the S&P500 lower. Nvidia also saw a woeful late session tape, with price falling from $952 to $926, and as goes Nvidia, as goes the market.

Looking at sectors with the S&P500, it was utilities that fared most poorly, although tech (-0.8%) had a greater influence on broad semantics. The bulls will point to rotation into financials and healthcare, but the percentage moves haven’t been overly convincing.


With loose signs of rotation, it remains tough to be short NAS100, US30 or US500 on the higher timeframes, although I see modest ST downside risk for the NAS100 and a potential test of the 15 March swing low and 50-day MA. 

Pepperstone’s Asia equity opening calls:

ASX200 7763 -17

NKY225 40,462 +65

HK50 16,550 -68

Our calls for Asia look mixed at this stage, with modest downside expected on the open for the ASX200 and HK50, while Japan should see a modestly higher net change as we head into Japan’s financial year end. The AUS200 looks set for choppy trade, with 7800 the level to fade rallies and pullbacks likely limited to 7720 – direction is likely to come from how the banks trade.

On the data front, we’ve seen a modest decline in US consumer confidence (the index came in at 104.7 vs 106.7 in Feb), with a slight deterioration in both the Richmond and Dallas Fed manufacturing.

US 2yr Treasury (USTs) yields have lost 4bp on the day, and this has taken some wind out of the USD’s sails, although the real test for traders comes in the session ahead with Fed gov Chris Waller speaking on US economics (9am AEDT). Recall, Waller has dictated key turning points in USTs (and by extension equity markets) in October, November, and February, so he is one of the few who can really get the party started. Waller leans towards the hawkish contingent of the voting committee, but it's hard to justify another pivot in his thinking until we see the March data series (NFP 5/4, CPI 10/4).

In FX markets the USD index tracks a tight range and hasn’t been overly impacted by month and quarter-end flows just yet. I still favour an upside break (for the USDX) of 104.5 but am mindful that the PBoC is not helping this bias, and in the past two sessions they’ve used the CNY ‘fix’ to push back on expectations that they are prepared to let USDCNY trend higher.

What is working are the high-carry LATAM currencies, notably the MXN and COP. MXNJPY longs and GBPMXN shorts have worked well, and in an environment of low volatility, the MXN is the clear momentum play. Put EURMXN on the radar as price breaks the August 2023 and range lows – I see real risks this trades lower from here.

Eyes also on AUD exposures today with Aus (monthly) CPI due at 11:30 AEDT – the consensus is we see a tick higher to 3.5% (from 3.4%) with the range of estimates seen between 3.8% and 3.3%. Aussie swaps price no change for the May RBA meeting and we see the August or September meeting as the live meetings. It would take a big downside miss to get the market excited about a 25bp cut in June, and August is likely to minimum starting point – subsequently, the risk is we see a bigger upside move in AUD on an upside CPI surprise, than the move lower on a miss. I suspect once we move past the CPI print AUDUSD reverts to aligning with USDCNH. 


In the commodity scene, gold has again been well traded with the move into 2200, with a skew to fade the rally into the big number. The trade on the higher timeframes remains skewed to play the 2200 to 2150 range for now and while Fed gov Waller's speech poses a risk to gold, notably if we do see some life in the UST market, there is risk to hold this range past a holiday impacted US core PCE and NFPs. 

Client interest in Cocoa remains elevated, with good interest to layer into shorts into 10k. Again, this is impossible to chase but shorts – other than for a scalp – have been tough. Given the extent of the rally and the grossly overbought nature of price, position sizing is naturally of paramount importance. I am biased to wait for the market structure to change where there is increased confidence that profit takers will all work together and that creates a sharp move lower – sell stop orders below the session low of 9629 are a tactical way to execute, for a move into the 5-day EMA. 

Crude has given some of the recent gains back with WTI crude -0.4%, while Brent sits -1%. Dalian iron ore futures traded -2.2% in the night session, while copper closed -0.2%.