buy risk

GM.

Early and short one.

Focus for me today is what happens with the euro.

If we tick sub-1.0780, I would be long risk again.

Why?

• European yield situation would be subsiding.

• Euro had been used as funding ccy for a long time. Possibly some hangover where relationship of higher euro means some unwinding, albeit this is a shaky reason.

• I believe that since weekend has been relatively calm, traders might be prepared to cover some of their shorts.

• ES open wasn’t really that brutal — more credence to path of least resistance being higher for a few days

What is the big pending risk though?

Japan.

Recall the yen unwind?

In my view, that could happen again and can easily send some shockwaves through markets — it’s a stronger form of the relationship between risk and euro as I described above.

Japanese inflation is a problem.

And they have not completely managed to shift rates higher yet, with the Japanese base rate being ONLY at 0.5%.

They are cautious, of course, however this effectively means current real rate of interest is -3.5%.

Perhaps they are inviting said inflation after their own policies hadn’t managed it — but it cannot be good, especially on a basis of importing almost all of their energy, that the energy complex is showing a tough of inflation again too…

So 1) pay attention to euro softness for a guide to risk at the front part of this week — there is a trading opportunity here but DO NOT hold for a long time when you buy it.

2) Ensure Japan is at the forefront of your mind when analysis data going forward.