📝 Seen Stopping Out In USD/JPY Shorts, EUR/USD Topside Structures: UBS Strategy

A USD buying bias has come to the fore since the ISM January services print with heavy real money involvement. The desk has seen interest to buy USDEM and stopping out of USDJPY shorts. Fast-money names are looking to buy USDCNH topside, and there has been stopping out of EURUSD topside structures.

There is nervousness in FX markets as there has been some knee-jerk short USD covering following the US non-farm payrolls print. I think there's going to be interest to fade this move and look through the headline number. Those who will stick to the USD short narrative are going to argue this is further feeding the case for a goldilocks scenario and soft landing.

If the US economy is remaining resilient and inflation continues to come off then this is supportive to risk and carry trades alike. I would think this should take some of the cuts out of the back of the FOMC curve though if the thought is less recessionary risk. On the flip side, one could also argue the higher for longer rates side maintaining USD strength. - UBS Strategy