SocGen: Lethargy Is Creeping Into FX Markets

Tyler Durden's picture

We - as well as Citi - previously commented on the broader market complacency in the market wrap. Now it's the turn of SocGen's FX strategist Kit Juckes to make some observations about emerging concerns of "lethargy" both in positioning and moves within the FX space.

From Juckes

Stretched moves threaten lethargy


Last week's CFTC positioning data suggest that speculators are long the euro and long 10year Treasuries. The CFTC data only tell us about a part of either the FX or rates market, and I'm particularly wary of jumping to conclusions about 10year Notes as the wander around in their current range, but even so, the jist of the story is consistent: The inability of 10year US yields to get back above 2.40% and the willingness of speculators to go long even as yields fall back below their 2017 average, is what keeps the 10year Treasury/Bund spread at multi-month lows and EUR/USD bid.


The question, this week as it has been for a while, is whether a market with what seem stretched positions in both bonds and FX, can really take EUR/USD on upwards without some kind of correction? The main focus will be on Thursday's ECB meeting and everyone (as far as I can tell) expects the focus to be on the lack of inflation rather than the case for further tapering of the ECB's bond purchases. There's clearly some reluctance to rock the boat (both in bond and currency markets) at the start of the summer break. That leaves us with EUR/USD 1.1620 as the next technical target, while on the downside 1.13 is the key support. Recent experience suggests we won't get to the support line and will just mess about in this range before pushing higher again.



There's little for the US market to focus on. Empire manufacturing today, TIC data tomorrow, housing starts on Wednesday and Philly Fed Thursday. Positioning ought to put a floor under yields around these levels but I struggle to see how we can generate the conditions for a sharp enough rise to threaten broader risk sentiment. USD/JPY may benefit, and if it does, so might EUR/JPY and AUD/JPY. The BOJ is expected to downgrade expectations on inflation revise upwards its growth outlook on Friday.

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medium giraffe's picture

"can really take EUR/USD on upwards without some kind of correction?"

was thinking the same.  more volatile euro crosses are dead, with lots of gapping and jumping at a micro level.  combined with the high strangeness in indicies on Friday, it's become clear that it's time to fuck off on holiday instead.

Bigly's picture

Maybe if we are all looking the other way a massive correction will ensue.

We need a correction though so let's look the other way....

DavidC's picture

That made me smile! I'm looking...!


yogibear's picture

Any measurable correction and the central banksters will step in. They know the inflated massive bubbles almost everywhere. It's about keeping all the plates spinning.

DavidC's picture

Good points and good to know that I wasn't the only one (among others I would hazard to guess!) to wonder at the strangeness on Friday, even in this time of overall strangeness!


LawsofPhysics's picture

The truth is always stranger than fiction.

"Full Faith and Credit"

yogibear's picture

Easy to see the Fed will be forced to do $200 billion/month QE.

Central banksters stuck in QE-forever until the huge reset. No other way out.

Notice the financial heroin needs to double with each crisis? After $200 billion/ month it's $400 billion/ month. Make it bigger each time.

Dragon HAwk's picture

Will there be a lot of Unemployed FX people, when the new world currency takes over,? what will that do to the hookers and Blow markets. not to mention the high end real estate divorce market.

yogibear's picture

Indeed a new IMF currency to reset and fix the old.  Old boss, same as the new one. Main plan is a new world currency. It's a matter of forcing everyone on it.

Ink Pusher's picture

In this particular case , it seems that someone has indeed confused the definition for lethargy with that of extreme apprehension.