There are days in foreign exchange when the smartest trade is made on the golf course.
The Boredom Trade Before the Triple Threat
There are days in foreign exchange when the smartest trade is made on the golf course.
Today feels suspiciously like one of them.
Markets have settled into an uneasy calm ahead of a rather nasty three-club combination: , Nvidia and . Two for sure, but really any one of those can move the dollar. Taken together, they have left cross-asset traders staring at screens that are flashing plenty of information but very little invitation.
Oil has at least removed one of the heavier boots from the market’s throat. has fallen for a third straight session, briefly trading around $86/bbl as renewed Iran-Oman talks raised hopes that a navigational corridor through the Strait of Hormuz could eventually be established. Nothing has actually reopened yet, which is an important distinction, but markets trade the probability distribution before they trade the shipping manifest. Lower crude has pulled some inflation premium out of bonds and given long-end Treasury yields a little more breathing room.
And this is where the rates story becomes interesting for currencies.
Scott Bessent’s enlarged Treasury buybacks appear to have put a heavier hand on the back end of the curve. The 30-year swap spread has tightened by roughly 6 bp since the announcement, while outright 10-year and have retraced toward the levels seen when the policy was unveiled. In other words, the back end has stopped behaving like the drunk uncle at the wedding, at least temporarily.
That means the market’s attention now migrates toward the front end, where Kevin Warsh takes possession of the microphone at Jackson Hole on Friday.
I suspect traders hoping for a policy thunderbolt may instead receive central-bank oatmeal. Price stability, data dependence, vigilance, uncertainty — all the nutritious ingredients will probably be there. What matters for FX is whether Warsh gives markets any reason to rebuild September Fed hike probability. With the long end already doing some of the tightening and the economy sending less convincing signals, there is little need for him to arrive in Wyoming wearing a hawk costume. ING similarly sees the focus shifting from Bessent’s influence over the back end toward the Fed and the front end as Jackson Hole approaches.
Which brings me back to the dollar.
My signals are telling me I should be much shorter dollars here. My trader instinct is telling me not yet.
There is a difference.
The model does not have to sit through PCE and Warsh. I do.
French political risk is also creeping back into the peripheral vision, with French borrowing costs elevated and the 2027 presidential campaign beginning to cast a longer shadow over and, potentially, the euro. That is not necessarily an immediate sell signal, but it is enough sand in the gearbox to make a broad dollar short less pristine than the models suggest.
More importantly, the timing simply does not fit my trading process. By the time New York is properly up and running at 10 a.m., it is already 9 p.m. here in Thailand. Putting on meaningful fresh FX risk at that point can easily mean nursing a position through midnight and beyond, particularly with Jackson Hole hanging over the market. After a good week, that is precisely the sort of trade I have learned not to force. There will always be another entry, another session and another piece of data. So rather than turn Friday night into an unnecessary vigil, I am inclined to keep the broader dollar-short signal holstered and stick with the yen view, where the policy divergence, softer oil and calmer rates backdrop already give me a cleaner hand to play.
This reminds me of something I wrote in One for the Trader about the boredom trade.
Traders have a dangerous habit of confusing time spent watching markets with opportunity. Sit behind the screens long enough and eventually Jack-six starts looking playable. You convince yourself there must be a trade because you have been waiting three hours to make one.
There doesn’t.
More trades do not mean more opportunity.
Macro, positioning, valuation and price action do not yet have to agree simply because I would like them to. Sometimes the market deals you rubbish and the professional decision is to fold cheaply rather than manufacture conviction.
And frankly, FX today looks like a Jack-six hand.
is telling a similar story. It has eased back ahead of the triple event threat, which is broadly what I expected. I still favour buying dips, but I was disappointed that the break above $4,700/oz failed to unleash the next momentum wave I had anticipated. That doesn’t kill the bullish argument, but it does tell me to loosen my grip on the reins of momentum. When a market clears an obvious fence, and nobody comes galloping through behind it, you pay attention.
The one place where I have been willing to add some risk is the yen.
Here the relative policy arithmetic is becoming harder to ignore.
Markets are now close to fully pricing a September BoJ hike, while the probability of a September has moved the other way. Japanese services PPI reinforced that divergence, rebounding to 3.6% year-on-year in July, while several BoJ policymakers continue to lean toward further normalization. MUFG notes that market pricing for a September BoJ hike has climbed to around 85%, with Deputy Governor Himino and several hawkish board members still due to speak before the meeting.
That does not guarantee a straight-line decline in . Nothing involving the yen has travelled in a straight line since fax machines were considered advanced technology.
But the ingredients are improving.
Falling oil prices matter because Japan imports its energy. Calmer US long-end yields matter because they take some of the dollar’s gravitational pull out. And a BoJ preparing to tighten while the Fed becomes progressively less certain about doing the same starts narrowing the policy gap that has underwritten the yen carry trade for years.
So I have added some yen longs while keeping the broader dollar short signal largely holstered.
If Warsh offers no strong September hike steer on Friday, US front-end yields can soften further just as the BoJ story is hardening. That is the sort of relative-value alignment I prefer: not betting that the whole dollar edifice suddenly collapses, but finding the currency where the policy gears are already turning in the opposite direction.
The irony is that markets currently look extraordinarily relaxed about all of this. Equity and rates volatility remain subdued despite war, oil disruption, Treasury intervention, inflation uncertainty, Nvidia earnings and a Fed chair preparing to speak from Jackson Hole. Reuters describes global markets as effectively sitting in a holding pattern ahead of Nvidia, PCE and Warsh.
Perhaps the market is right.
Perhaps this really is just a quiet fairway between hazards.
But low volatility ahead of known event risk is not the same thing as low risk. Sometimes it simply means everyone has decided to wait for somebody else to hit the first ball.
For now, I am happy doing much the same.
Small yen long. Gold dip still favoured. Dollar short signal respected but not chased.
The bigger hand will come.
And when it does, I would rather have the chips available to play it than discover I spent them all because Wednesday afternoon got boring.
