A traders week ahead playbook - managing risk like a ninja

30 thg 4, 2023

There are weeks when the landmines by which traders must navigate are seen in such abundance, where the implications for market pricing are so meaningful, that we manage risk well or we simply get schooled - this week seems to be one of these.

As we look down the calendar we see marquee catalysts everywhere – earnings, central bank meetings and tier-one economic data – what’s more, they’ve given the UK a holiday to get the mindset on point.

It's all there, yet interestingly implied levels of volatility over the week remain subdued, and traders are simply not betting on broad cross-asset volatility. We’ll see if that aggregated view on volatility is priced correctly, but it certainly feels like many of the questions being asked will be partly answered this week.

Subdued volatility aside, the set-ups are there to entice – the NAS100 will look to Apple’s numbers, but price (in the index) has broken the consolidation phase and while breakouts have limited success, the upside target of 13,800 from the bull flag remains a real risk and the pain trade.


The US500 is having another crack at 4160 resistance – we saw a series of failed breaks in Feb, but is this time different? With all talk about awful breadth and so much of the heavy lifting done by Apple and Microsoft we see this leadership hasn’t given up yet, and a firm break of 4160 and many will be chasing the index to 4300.

The JPY crosses saw big moves on Friday and will continue to garner much attention this week – we’ve seen some huge breaks of significant resistance levels – pull up a daily chart of CHFJPY, EURJPY and GBPJPY and the question will be “to chase or not to chase”? I am sure many will be fading this move, but I am keen to let the buyers push this a little further, notably in USDJPY where the scalper in me has the 137.60/70 area in firm focus. The real action for the JPY comes into June where tactically I see a strong bullish backdrop in the making, but for now, the JPY is the weakest link.

AUDUSD held the 0.6584 range low last week and a poor China PMI (released Sunday) won't do longs many favours. Good support was seen here last week, but I would have preferred price to print a bullish outside day on Friday and that failed. The pair still looks heavy, and a close below 0.6584 would get a lot of attention.

Gold continues to consolidate – although you can flip it to XAUJPY and see a firm rally to new highs. I like a momentum move in XAUUSD and would be a buyer of strength through 2012 – that may not come, but a “body in motion stays in motion” approach is compelling. The trade will need buyers in US Treasuries, a steeper yield curve and US 5yr real rates headed through 1.14% (they currently sit at 1.23%).

Anyhow, plenty of going on – get in front of the screens and question where you see the balance of risk – or as is typically the best way in times like this, be agile, react like a ninja and be a slave to price action.

Marquee event risks for the week ahead

Treasury Secretary Yellen to announce the debt ceiling X-date (2-5 May) - Not a volatility event in itself, but the start of a process that could get blanket market attention going into July – where the market should give the debt ceiling far more consideration once we know the X-date; the explicit point when the US Treasury start having to cut back on essential payments.

FOMC meeting (4 May 04:00 AEST / Jay Powell press conference 04:30) - A 25bp hike seems a done deal – could this mark a temporary end to the Fed’s tightening hiking cycle? We see 79/98 economists calling a 25bp hike, with the market pricing an 85% chance of this outcome. With just 5bp of hikes priced for the June FOMC meeting, the market expects strong signals that a pause is coming. With inflation still highly elevated the risks are skewed to a hawkish hike. I see two-way risks for the USD through this meeting.

ECB meeting (4 May 22:15 AEST) - A 25bp hike to 3.75% is not just fully priced, there is a small premium for 50 bp. Positioning will be important, with the market long of EUR's and expecting to remain hawkish. There will be a focus on the upcoming wall of TLTRO repayment for EU banks and whether the ECB offer a short-term bridge to offset any potential liquidity issues for EU banks - the market sees the peak/terminal rate of 3.62%, implying 3 more 25bp hikes – does this seem correctly priced? EURJPY and EURAUD are the vehicles for the EUR bulls. EURGBP favoured into the range low of 0.8730.

US nonfarm payrolls (5 May 22:30 AEST) - The consensus is for 180k jobs (the economist’s range of 265k to 125k), which would be the lowest number of job additions since Dec 2020 - the U/E rate is eyed at 3.6% (unchanged), with average hourly earnings expected unchanged at 4.2% yoy. The NFP takes place after the FOMC meeting, so the outcome could influence June FOMC rates/OIS pricing. A number below 150k could hit the USD and boost the NAS100.

EU CPI (2 May 19:00 AEST) – the outcome could heavily shape pricing for the ECB meeting 2 days later – the market consensus is that we see headline core CPI (estimate) at 7% (from 6.9%), with core CPI at 5.6% (5.7%) with the economists range seen between 5.8% to 5.5% – EURUSD trades a 1.0900 to 1.1100 range – happy to be guided by this, but the market seems skewed for an upside break.

RBA meeting (2 May 14:30 AEST) - The market prices a 12% chance of 25bp hike for this meeting, which despite the base case for a hold, seems to be priced on the low side - Leverage funds are long AUD but real money are short - the market is priced for an extended pause from the RBA, which should limit the downside in AUD. Huge support at 0.6580 in AUDUSD, and happy to revisit shorts on a closing break.

US JOLTS jobs openings (3 May 00:00 AEST) - The consensus is that jobs openings fall to 9.725m (from 9.931m) - we've seen jobs openings steadily fall since March 2022 - a drop below 9.7m could be a positive for risk and be a small negative for the USD.

ISM manufacturing report (2 May 00:00 AEST) – the consensus sees the index at 46.8 (46.3) - a weak number, but less so than the prior month - one for the recession callers will be keen to point out, while crude holds a strong relationship with the new orders sub-component.

Euro Bank Lending survey - We look for intel on a tightening of bank lending standards - EU rates pricing, the EUR, and EU bank equity firmly in focus.

ISM services (4 May 00:00 AEST) - The market sees the index at 51.8 (from 51.2) – in essence, US service sector data continue to show the US is growing, but below trend.

April Employment report (5 May 22:30 AEST) - The market looks for 20k net jobs to be added, with the U/R at 5.1% - the market sees the BoC on hold in June, with rate cuts priced from Q3 and its hard to see this jobs report affecting pricing too intently. USDCAD is finding better sellers of late, and a break of 1.3531 may accelerate the move lower.

NZ Q1 Employment report (3 May 08:45 AEST) - The market looks for the U/R of 3.6%, with an employment change +1.8% - could get attention from FX traders, but unlikely to be a significant vol event for the NZD. That said, I see risks NZDUSD trades to 0.6250.