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How I'm Trading The Inflation Data Drop
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How I'm Trading The Inflation Data Drop

Introduction

The speaker introduces himself and the podcast, and mentions that market activity has been slow due to the upcoming release of U.S CPI data.

  • The speaker is Weston McMorrow from Blockworks Macro in Tokyo.
  • This is the Market Depth Podcast, providing global market commentary and analysis from the Asia Pacific Trading session.
  • Market activity has been slow due to the upcoming release of U.S CPI data.

Waiting for U.S CPI Data Release

The speaker discusses how market activity has been affected by the anticipation of the U.S CPI data release.

  • Market activity has been thin with low volume trading.
  • Price activity is not worth reading into because there is no market conviction behind movements.
  • Everyone is waiting on CPI data release.

Short Yen/Long Dollar Yen Position

The speaker shares a trade he currently has open, which involves shorting yen or going long on dollar yen position. He explains that this trade is not advice but rather an observation of his own personal trade.

  • Speaker shares a short-term trade he already opened earlier in the week.
  • Trade involves shorting yen or going long on dollar yen position.
  • CPI isn't exactly a catalyst but it's a major factor in the trade.
  • Time horizon for this trade is about one week or 10 days at max.

Disclaimer

The speaker provides a disclaimer regarding his trading activities and advises listeners not to follow his trades blindly.

  • Speaker warns listeners that he cannot give trading advice as it's impossible to address thousands of viewers at once without knowing their individual risk tolerance, experience levels, capabilities, etc.
  • Listeners should not try to duplicate his trades as they won't know when and how he exits the trade.
  • Speaker advises listeners not to listen to him and not to follow his trades blindly.

Trade Details

The speaker provides details about his current trade, including the currency pair, price levels, stop loss, and time horizon.

  • Speaker is long dollar yen (USD/JPY) opened at 132 level.
  • Target price is 137.50.
  • Stop loss to the downside is 129.10.
  • Time horizon for this trade is about one week or 10 days at max.

Trading Outcomes

The speaker discusses the potential outcomes of his trade and emphasizes that trading involves a lot of luck and risk.

  • If he's right, it's pure luck; if he's wrong, it's deserved.
  • Trading involves a lot of risk and there are no guarantees of success.

Thesis and Rationale Behind the Trade

The speaker explains why he decided to open this particular trade involving shorting yen or going long on dollar yen position.

  • He doesn't usually trade this currency pair but felt there was a compelling opportunity.
  • There isn't anything particularly compelling about this trade but it's unique enough for him to share with listeners.
  • He uses CME Yen Futures and options when trading effects directly but created spot with his Forex Trading account this time instead of shorting yen.

Market Sentiment and Unique Situation with US Payrolls Data

In this section, the speaker discusses market sentiment and how it is currently tilted towards a dovish Fed. The speaker also talks about the unique situation where US payrolls data was released on a market holiday, resulting in no real market reaction.

Market Sentiment

  • Markets are currently tilted towards a dovish Fed and rate cuts coming later this year.
  • If CPI is a 50/50 coin toss and comes in weaker, it would be less of a market-moving outcome than if CPI were to surprise to the upside.
  • A weaker CPI print would be more priced into markets, resulting in less of an adjustment.

Unique Situation with US Payrolls Data

  • U.S payrolls data came out on Friday during a market holiday, resulting in no real market reaction.
  • There was an absence of participation and activity across asset classes, especially in Yen Futures on CME.
  • Today's CPI reaction will be pre-loaded with residual reaction to non-farm payrolls from Friday.

Trading Dollar Yen Based on Yield Spreads

In this section, the speaker explains how yield spreads between US Treasury yields and JGB yields drive currency price action for Dollar Yen. The speaker also talks about the current setup with new BOJ leadership change.

Yield Spreads Driving Currency Price Action

  • Rising yield environment globally due to hawkish Fed and all other central banks led to Dollar strength and Yen weakness.
  • Current setup: New BOJ governor Ueda started this week with policy continuity at least for now until April BOJ meeting at end of month.
  • If US CPI comes in above expectations and markets swing towards pricing in a more hawkish Fed, then we have a mini repeat setup of policy divergence between Fed hiking versus BOJ standstill.

Japan Retail and CME Futures Positioning

In this section, the speaker discusses the positioning data for Japan retail and CME futures.

Positioning Data

  • The speaker looks at Japan retail positioning from a trading platform called gaitanya.com.
  • Recent days show a slightly more bearish bias on USD JPY.
  • For CME, the speaker looks at commitment of traders data positioning data.
  • The asset managers category dictates price action for Yen futures rather than leverage positions.
  • Currently, there is a net long JPY bias that could potentially reverse.

BOJ Press Conference and Protonomics

In this section, the speaker talks about how markets will be trading off of what was stated in the BOJ press conference on Monday.

Market Activity

  • Markets will be trading off of what was stated in the BOJ press conference on Monday until April 28th when the actual policy meeting approaches.
  • Protonomics is still alive for now.
  • The speaker shows how they would trade a situation like this as a learning lesson. They will update future episodes with their activity on this trade.

Conclusion

In this section, the speaker concludes by thanking viewers.

Final Thoughts

  • This video serves as more of a learning lesson than anything else.
  • Stay tuned to see how this trade works out and how the position is managed depending on market behavior.
  • Thanks for watching.
Video description

As global markets await the US CPI release for March 2023, Weston Nakamura shares a trade that he has opened this week: Long USDJPY, with the data drop as a potential market moving catalyst. Weston discusses his framework for the trade- including the unique market stance of having last Friday's US Nonfarm Payrolls data mixed into the CPI reaction, the rate markets' setup which parallels that of the 2022 Yield Curve Control environment, and broader market positioning. This is an opportunity to follow along with a live trade, as Weston will update in coming episodes accordingly. For more detail on yen price action and yield spreads, watch: How Will the Bank of Japan Move Markets? https://youtu.be/C9ii-m0LLb0 -- Follow Market Depth On Spotify: https://spoti.fi/3mVTs9U Follow Market Depth On Apple Podcasts: https://apple.co/40dA2vm Follow Weston: https://twitter.com/acrossthespread Follow Blockworks: https://twitter.com/Blockworks_  Get top market insights and the latest in crypto news. Subscribe to Blockworks Daily Newsletter: https://blockworks.co/newsletter/ -- Disclaimer: Nothing discussed on Market Depth should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.