Forex Investment and Currency Trading

• USD/CHF is one of the few G10 currency pairs that is not currently taking its cues from global equity markets, with short term correlations close to zero. As such, this is one of the few ways
  of playing fundamentally USD-positive view, whilst at the same time avoiding exposure to short term equity market volatility. Bought USD/CHF at 1.1880, setting an initial wide stop loss at 1.1650. Will add additional exposure on a rally to 1.2210. The rally in USD/CHF that followed the SNB’s surprise 100bp rate cut today stopped just short of that level.

Trades Under Consideration

• Sell vanilla 3M USD/JPY puts: USD/JPY is likely to retreat into a relatively narrow range going forward, with the downside in particular limited by a material risk of BoJ intervention. The latter is currently compounded by JPY’s strength against all of the Asian EM currencies. Both USD and JPY are currently trading as safe havens, which should limit volatility in the cross and, with margin traders having retreated to the sidelines (TFX positioning is essentially neutral) one source of JPY strength is gone. Selling a 3M 92.00 strike USD put/JPY call raises 3.2% of USD in premium and exploits the view that USD/JPY downside is limited and that vols (3M at 22%) will compress in coming weeks. However, we need to see some evidence that the lock-step link between FX and stocks is weakening before committing to this position.
• Buy EUR/AUD: This currency pair correlates closely with other global growth proxies (the US ISM for example) and the historical relationship, combined with the recent abysmal reading on global business confidence measures, suggests further upside. However, with intra-day ranges typically varying from 500-1000pts in this currency pair, and with short term direction dictated by little other than short term movement in equity indices we are reluctant to enter in current markets.
• Sell NZD TWI proxy: Technically, the 40 day moving average has been a good level to short NZD on a TWI basis since the currency topped out in February. The late-October/early-November bounce saw that level once again tested, but downside momentum is once again building. Despite better than expected labour market data this week, NZ fundamentals remain poor and
  the risk of more aggressive RBNZ cuts than the market discounts.