Goldmember

[25/09/25]

Before you engage… this is about as contrarian as they come. I am well aware that it contrasts with the DNA of most readers.

XAUUSD is up 46% YTD. It is up 84% since the beginning of 2024. The DXY is down 5% over the same period. In the price increase is two persistent geopolitical tragedies, a de-dollarization/debasement trade of the soundest logic, aggressive and wide-spread openly-reported central bank reserve accumulation, an excitable CTA community lip-licking at the succession of trending highs culminating in the eye watering % gains aforementioned, as well as various metal-specific US tariff concerns that have stressed regional commodities exchanges and associated storage and logistics.

The most recent acceleration in demand, confirmed by the enormous growth in GCZ5 Dec XAU future open interest, has been the technical break-out through the 3,430 pivot depicted by the red line on the chart below, which chimed with the hasty rebuilding of the USD short trade in the FX space - responsible for much of the spec community’s YTD performance as it collapsed in April and had always been ear-marked to resume in Q3.

That USD trade, as detailed in the previous blog post [EURUSD update 17/09/25], is suffering somewhat. Pain is being inflicted across the board as the post-Fed range breaks failed and we slump back into a choppy regime, with carry:vol ratios high enough to again lure people into the darlings (ZAR, TRY). I sense that the most annoying of these USD reversals (i.e. those that were built reluctantly into/over the Fed and with more than a sprinkle of FOMO) are EURUSD longs and USDCNH shorts. Yesterday saw aggressive cutting of both.

All said, I am wondering if the XAU long - given this too has A) come an awful long way and B) is in the same grouping as EURUSD and USDCNH when tested for ‘addition at poor levels recently’ symptoms - is also vulnerable in coming sessions or weeks. In this market I suspect pain felt elsewhere may be funded by the winners - of which XAU is front of pack - and I worry that we do not have a fresh USD lower catalyst for some time now - outside of a US government shut-down, which is quickly on our radars but may be a severe enough VaR shock that it actually sees books collapsed and asset-shedding… i.e. the ultimate resolution may be a large deleveraging in US tech stocks/indices and XAU and XAG. I am therefore playing for a pull-back in XAUUSD, but in limited-loss format and with enough time in the lifespan of the trade to weather any initial volatility.

Trade expression of choice:

The cash trade would be: Short GCZ5 Dec25 Gold Future at 3785 (spot equivalent $3755t/oz) with a tight stop through the highs at 3840 ($3,810 spot equivalent). Risking 1.5% on the idea to make 8%, which will either work very well very quickly, or be stopped within a short timeframe!

I am however going to anticipate greater chop in the short-term and suspect that a 1.5% cash stop in a 16 vol ccy will become a regret. I also want more leverage as I believe the move will play out quickly (in %-terms) when it happens. I am therefore instead buying a 3m $3,450 digital XAUUSD put for 12%. Expiry right around Xmas. A late profit-taking gift? The strike is just above the tech break, which is 8% beneath spot, but these options are expensive, with the OTM strike and favourable (3792) ATMF not doing much to make the 16 vol handle more palatable. Hopefully expensive for a reason.

Thanks for reading!

Fair weather friends

[09/09/25]

Local politics have served as a distraction from the Fed independence/US exceptionalism/tariff roll-out themes through the summer. Be it Turkish CHP leadership/Indonesian Finance Minister removal, the Ishiba resignation in Japan, UK Labour misdemeanors/pre-budget reshuffle or the collapse of Bayrou’s government in France, the market has not been short of idiosyncratic themes to get its teeth into, whilst the ‘tier1’ theme stalls. ‘Fiscal dominance’ - not mutually exclusive from the above events - is a term used regularly and necessarily, given the rising back-end yields most developed economies are experiencing.

This week, following the Ishiba-inspired gap lower in the JPY on the Wellington open, market participants (who had spent Friday afternoon selling USDJPY into the 146.80/147.00 sticky zone) received a body-shot (>148.50), which I believe lessened appetite to sit long EURs into the Bayrou confidence vote and a potential Macron resignation gap during the past 24hrs. The JPY is now notably firming, with far less participation, as the event enters the rear-view and I suspect the EUR is now poised to breathe a similar sigh of relief. Even the pound is enjoying a brief reprieve as speculators realise we have a long wait until 26th Nov - yet another signal that political disarray doesn’t necessarily equate to currency destruction… yet.

We are of course not out of the woods from a French political standpoint, but this does not mean we cannot price-out some of this risk premium; ideally proxied and accompanied by a calming of fixed income spreads.

Although I have the EURXXX exposure in EURCHF, I have been sleeping on the idea of the short USD component that many already have on their roster. On the USD side of the equation, I had seen 25-28bp for the Sep Fed as fair if not mature and so had been waiting for either momentum resumption, a clear September ‘back to school’ story and/or US data confirmation. I think the US data confirmation arrived on Friday (I had expected a 25-50k headline to be clouded by a ‘better’ UR of 4.1%, which it wasn’t) and see this EURUSD trendline break depicted below as being an embryonic and liquid version of the development in the gold market of late. Rather, I am seeing decent asymmetry to play for the break here vs. the other USD selections in the G10 space, given what are now clearly defined levels to me. It is not a familiar experience to be engaging with something at the extremes, but I think the exception can be made to add a USD-lower component as I construct, given how powerful a driver it was through H1 and how under-owned I now sense this trade is. Should EURUSD reverse - whilst frustrating, I will be comfortable that it was a worthwhile play and one that would form the foundation of a USD lower basket, should the theme resume.
The clear risk in the short-term that can extinguish the view quickly is that today’s BLS revisions are not as negative as we expect, which could stifle the momentum as quickly as it had built, but I would prefer to establish the risk ahead of the release. On the US CPI front, I am happy that a hot print, given the Fed blackout, will see USD supply into any rally.

Trade expression of choice:
Long EURUSD (spot) 1.1750. S/L 50% 1.1650 (trendline relapse), 50% 1.1530 (100dMA pivot since Nov’24)
i.e. S/L average is 1.1590; risking 1.4% on the view
T/P 1.2100

Update [17/09/25]

Selling 50% of EURUSD long at 1.1850. S/L at average entry 1.1650 for the balance of 50%. Margin usage for this trade therefore reduced from 4% to 2%. 
Crucially, I don't understand why the momentum has built in the 48hr pre-Fed, when we have had a series of what I had interpreted to be negative US data releases over the course of the prior week (PPI, CPI (Core PCE 0.18-0.20% read-through), IJC (Texas or otherwise), U.Mich, NFP revisions of c.900k and Empire Manufacturing), yet the USD had displayed absolutely no interest in following US rates nor taking direction from XAU. Ironically, a US retail sales beat coincided with the momentum resumption!
That said, be it FOMO/pre-meeting positioning or systematic flow driving the move, I believe it prudent to reduce the risk into this pre-Fed rally in EURUSD. I don't plan on 'actively' trading around the levels communicated on these longer-term ideas, but watching the moderation in AUD, XAU and ZAR pre-meeting, and recognising the macro data dislocation, I would like to adjust here. To cover the eventuality that this is indeed the USD break we have been waiting for, the TP on the balance will remain at 1.21. 

For colour - examples of hawkish outcomes over the Fed on the radar:
- The use of the word ‘insurance’ accompanying a 25bp cut
- No adjustment in the ‘25 dot from 3.9 down to 3.6
- Powell playing-up labour supply issues and highlighting uncertainty on the b/e unemployment rate
- No lowering in PCE long-run projection from 3.1 (i.e. unchanged, despite CPI/PCE read-through mentioned above)
- Cook, still voting, ‘rebelling’ with a dissenting ‘hold’ alongside Schmidt (NB unlikely!!)

Good luck out there!

Update [26/09/25]

The remaining 50% of EURUSD balance stopped at 1.1650 yesterday evening. The cocktail of US curve flattening, improving US data and a cleanse in legacy USD shorts takes us out of the position. Happy with the risk management pre-FOMC and ultimately hold a longer-term USD bearish view, but respecting the price action and the trend-line break/levels.

Overall cost of trade (carry; as stopped at average entry) 9bp i.e. -0.09% on 2% margin usage

Goodbye, franc.

[21/08/25]

In a world that punishes central banks late to cut (Fed) and rewards those early in the cycle (ECB) from a currency standpoint, the swift and drastic lowering of the OCR by the Swiss National Bank to oh-so-familiar ‘zero bound’ territory has meant that the franc has thrived for the past 12 months (in fact, the past decade). The balancing act of lower local yields cementing the ‘funder’ status of the franc and the perennial need for market participants to view it as a haven (and to quickly ratchet up this exposure and happily pay the punitive carry during times of geopolitical disarray) has seen the latter win out. I view this balancing act - that has manifested in EURCHF coiling within a 0.9250/9450 range this summer - as being over. We now have two further weights on the CHF side of the scales:
A) The net effective U.S. tariff rate of c.18% (vs the terrifying 39% headline rate, assuming Pharma resolution in coming weeks and the continued exemption of gold tariffs)
B) The Trump-brokered ongoing Russia/Ukraine/Europe/US conversation, whilst difficult to track and harder to conclude, can see a sharp risk premium removal in EURCHF specifically. Both European restructuring multiplier effects and the direct impact of unfrozen Russian assets, which I suspect will benefit EUR more than it will benefit USD, gold and bitcoin, can see sustained EUR cross recovery.
It has been a while since negative domestic Swiss newsflow has been a driver of the currency. In fact, the last bout of sustained pressure on the franc and associated speculative activity was earlier in the cutting cycle through H1 2024. This low level of current positioning reinforces my view. Realised (thus implied) vol in XXXCHF is still incredibly low, and so the confluence of this view with the resultant well-defined spot levels in EURCHF, alongside cheaper option expressions in the other crosses is attractive. The kicker is that rate differentials in places are suggestive of a recalibration - see below CHFJPY chart of spot vs. the 6m forward rate - traditionally a better indicator of spot direction, yet recently diverging despite the SNB seemingly done with the OCR relapse and focusing on the FX intervention side of their mandate, whilst the BOJ face an entirely different issue of higher inflation, higher yields and perhaps the need to consequently embark upon an entirely unfamiliar hiking cycle themselves.
The risk is that I’m not identifying an early regime change, flagged by a 48hr U.S. tech stock/Reddit wall episode, or that I am underestimating the degree to which the market is pre-positioning for an end to the Russia/Ukraine conflict. That said; I’m expressing both in limited-loss format.

Trade expressions of choice (pricing references 8amLDN):
(50%) Long EURCHF spot 0.9370 (0.9600 T/P; 0.9270 S/L)
(50%) Long CHFJPY 6m 170 digital put @ 13% (spot reference 183.10)