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The ultimate week ahead traders' playbook

2 August 2021

It promises to be a big week for event risk and one where I'm personally hoping for the VIX index to reclaim the 20% threshold, with bond and FX volatility pushing higher. As it is, the market is pricing the S&P 500 to have daily moves (higher or lower) of 0.8%, yet pricing a move of +/-1.2% for the full week.

Through the week the implied move in AUDUSD is 94 pips, with GBPUSD at 136-pips and USDJPY 79-pips. Gold is expected to move up or down $33 from Friday's close, putting a range of 1847 to 1781 in play on the week, and we can have a 68% probability of price holding in that range.

RBA – the choice of least regret

As we see on the chart, the AUD was the worst-performing major currencies last week, so perhaps ‘the Aussie battler’ is already pricing the RBA delaying tapering its QE purchases until later in the year. Maybe the buyers have just had their focus on the Olympics where it’s been an out and out medal fest.

Past 5-day moves vs the AUD

AUDCHF is in freefall at present but is grossly oversold with the 14-day RSI below 25 – for the quants out there, since 2000 there have been 76 occasions when the RSI (on AUDCHF) is <30, 5 days later the cross is higher 56% of the time – not sure how much of an edge that offers, which I guess is why we don’t use oscillators in isolation. That said, the bear trend is powerful, and rallies should be sold.

The BoE meeting in focus

GBPAUD has been a pair I have been calling higher, and it feels like the news flow warrants this above 1.9000. I am concerned the BoE won't be as hawkish as what the GBP is pricing, while I suspect the AUD is pricing in a taper – I agree with Westpac’s logic that they should increase its QE program, an action that should see the AUD crosses lower. If they leave the QE taper schedule unchanged, with the original plan to taper in September, the AUD will fly.

NFPs – will we see the elusive 1m jobs created?

The US payrolls will be a marquee event risk too – of the big macro arguments – Fed policy timing is one of them and clearly driven predominantly by the labour market. Subsequently, if we do see the elusive 1 million jobs created, then calls for a September announcement for tapering the asset purchases program will ramp up. A poor number (relative to consensus), where the unemployment rate fails to materially tick down will push US 10-yr bond yields into 1.17% and, as said before, should bring the 1% level into play – this will support gold, but will no longer support equities - lower yields and flatter curves will start to really negatively impact sentiment.

Looking at the past 10 payrolls, the average move in the S&P 500 is the six hours after payrolls is +0.41%, while the DXY is -0.2% and gold -0.06%, although gold has rallied in each of the past five reports – when we look at the performance one hour after the data gold has rallied consecutively in the past eight payrolls report. Gold is a hedge against a poor payrolls report – what’s poor? Below 700k I’d say.

What’s front on mind this week?

I’d argue anything over 1m, with a good participation and clear slack coming out of the market should get the market fired up – with higher bond yields driving up the USD and equities. A weak number and the market will increase its speculation we could see 10yr Treasuries eyeing a move to 1% - a factor that could negatively impact equities, high beta FX (AUD, NOK, and NOK for example) and weigh on USDCHF. It would boost Gold.




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