USD reigns supreme
Today we’ll cover:
- Quarter and Month end ﬂows dominate
- US yields break higher again
- Stocks crumble
- Seasonality in play or something more serious?
I am going to disappear down a bit of a USD rabbit hole today so be warned, but I think it holds relevance to Crypto and broader macro markets as well.
Yesterday saw a Crypto rally snubbed out in its prime yet again as the broader macro theme took over. We were skewed to sellers into the rally in the majors as month and quarter end ﬂows dominated ours, and others books.
The rally in US yields is quite staggering to me as the 10 year trades above 4.6 amid some generic higher for longer comments from FED ofﬁcials. US stock markets continue to lead the move lower in risk and in this environment no risk asset is proving safe. That said, for BTC to be above 26,000 and ETH above 1600 is seriously impressive and should be respected in the medium term.
The USD is reigning supreme as Eur/Usd makes new lows on the year, GBP is close to 1.2000 again having been above 1.3000 a few weeks ago and USD/JPY is within a whisper of 150 causing sleepless nights for the MOF.
This brings me to seasonal trends which have played out very well this year in the markets. This period of the year is often the worst performing time of the year for stock markets, as it is proving again, and the link between stocks and the USD is strong due to rebalancing ﬂows. So it is worth noting that October is often a very strong month for stocks and with long positions cleared out and speculative shorts rife the set up is there once again for seasonal inﬂows to dominate. The danger to this view is with interest rates being so high it could reduce the money poured into risk when you can get 6% in the bank but I still believe the ﬂows will materialise.
The USD often shows a similar seasonal path and this is highlighted by the USD index charts below. You can see that last year the USD was rampant at this time of year but peaked at the end of September as seasonal ﬂows started a rout which continued for some time. The peak on the chart was September The 29th 2022 and what followed was an 8% move lower into the year end.
The set up this year is not dissimilar to then and is shown below as we zoom in on the recent move.
Is it too perfect? Perhaps.
Is it worth respecting? For me 100% with potential for good news next month in Crypto and other asset classes.
Good luck as always
Head of OTC Trading
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