APFX Research

The ECB Is Overtightening

AP Research — Thu, 10 Sep 2026 14:54:39 GMT

At the beginning of June, we noted in Three Curves, One Message that “the Eurozone is in a fragile state, and simply can’t handle 3-4 hikes over the coming 12 months.” Since then, the ECB has hiked twice (the second this afternoon), with futures pricing in 40bps of further hikes through to year-end.

Although we haven’t been as explicit in recent commentary on the monetary policy actions of the ECB, we want to reaffirm our view that hiking twice through to year-end would be a policy mistake.

Even though we don’t fight rate pricing for the October or December meetings, targeting a reversal in 2-year Bunds looks attractive.

France’s Fiscal Reckoning

AP Research — Tue, 08 Sep 2026 09:02:44 GMT

The kick-off in the 2027 French Presidential campaign and the associated fiscal indiscipline is already being felt in French assets. With the OAT Bund 10-year spread back at YTD highs, along with other signs of stress in the sovereign space, it’s clear the market is worried about where things could go in the coming months.

The political problem is becoming harder to distinguish from the fiscal one that the country also has to contend with. The latest TV debate between presidential candidates presented fiscal proposals that ranged from implausible to downright bizarre (Far-left candidate Jean-Luc Mélenchon said “to just take the bonds, and burn them.”)

From where we stand, there is plenty of risk premium left to be built into French rates, and opportunities are emerging.

Mission Impossible: Ueda Protocol

AP Research — Thu, 03 Sep 2026 12:51:48 GMT

USD/JPY has turned sharply lower in the past couple of trading sessions and is now four big figures lower at the 156 handle. After flagging a month ago that the latest round of intervention on the pair should be faded, this did play out. However, the events of the past few days lead us to conclude that Japanese authorities are becoming increasingly conflicted.

Pressure from Bessent, pressure from PM Takaichi, and pressure from the domestic economy are pulling Ueda and his colleagues in different directions on monetary policy actions.

This leads us to conclude that, for the moment, the outlook for the Yen is a complete mess and should be treated cautiously to avoid unnecessary losses from trading the pair.

Staying Long Gold

AP Research — Wed, 26 Aug 2026 16:02:37 GMT

Back in mid June, we nailed our colours to the mast and re-entered long XAU/USD via a six-month seagull. The title of the trade note, The Asymmetric Gold Trade , helped to explain one factor behind why we liked taking on exposure at that time.

Support was found around the $4,000 mark into July, with August sparking a strong rally higher in the precious metal.

Our structure still has three months to run, with our payoff only capped above $5,400. That projection might raise some eyebrows, but there are plenty of growing tailwinds to suggest at least a run at $5,000 before year-end.

Bessent’s Bond Market Band-Aid

AP Research — Thu, 20 Aug 2026 11:35:26 GMT

Treasury Sec Bessent has been making headlines over the past 24 hours with his decision to double liquidity-support buyback operations for 10- to 30-year Treasuries. Even though this only kicks in in September, the announcement was enough to knee-jerk the long end lower and hit our M2M on our long US 2s30s steepener trade.

The move is a clear sign that there’s discomfort among the powers that be about 30-year yields hitting their highest level since 2007, and the strain of total public debt surpassing $40 trillion for the first time.

Although we take the arguments around the signalling this sends (is this Bessent’s take on Draghi’s ‘whatever it takes'?), we’re happy to hold the steepener trade and see this initial move fading. It further increases our conviction in being long XAU/USD along with other implications in the FX & Rates space.

Trading Burnham’s Britain

AP Research — Fri, 14 Aug 2026 13:39:22 GMT

We were tapped on the shoulder a couple of times over the past week about UK asset spread swaps before the Bloomberg report came out today.

Even though we have laid out our stall on how we see the BoE moving through to year-end in The BoE Hikes In Sept, we have largely stayed clear of any politically-driven UK plays so far this year, having been stopped out of our UK long 2s30s trade back in March.

We now see several promising fiscal signs heading into the autumn budget, and as new PM Burnham’s initial plans are implemented when parliament returns from recess. This makes Rates plays more attractive, through asset spread swaps or other plays.

The Yen-evitable Reversal

AP Research — Tue, 04 Aug 2026 12:29:48 GMT

After printing lows of 155.23 on Monday, the latest round of US/Japan intervention in the currency markets has finished. Although well executed in taking advantage of the AI spook in equity markets late last week and US data, the tree shake was inevitable.

We took profit on our long BRL/JPY trade on the 23rd July in advance of any action, tying it in with our latest thoughts on the Yen here.

In the trade note we concluded, “we don’t see such a move as being constructive for the Yen in the medium term, and would look to add fresh shorts on any interim dip.”

As a result, we now look to tactically fade the intervention-led move in Yen crosses, with the belief that (yet again) the fundamental picture for the currency hasn’t shifted.

Exploiting the Fed's Lack of Credibility

AP Research — Thu, 30 Jul 2026 12:44:41 GMT

Much has already been made of the FOMC meeting last night, both in the fact that we were told what we already expected (no hike in July, but one is looming) and in several points we weren’t expecting (Warsh’s confusing and contradictory presser).

Yet despite the confusion and pulling of forward guidance, the cleanest trade takeaway from the meeting is obvious to us: a clear bear steepening vibe for the coming months.

When you consider the meeting through such a lens, even Warsh’s lack of credibility adds to the appeal of taking on a new trade in the rates space.

The BoJ Chases the Yen

AP Research — Wed, 22 Jul 2026 09:14:21 GMT

According to a Bloomberg report gaining traction overnight, Bank of Japan (BOJ) officials are open to raising interest rates at a faster pace than the consensus. This would be in part to deal with inflation, but clearly with one eye also on USD/JPY, which traded through the 163.00 handle yesterday to print 40-year highs.

It’s true that shorting the Yen at these levels doesn’t offer an attractive risk/reward profile, which is why we took profit on our call spread a month ago. Yet although the concept of more targeted and frequent rate hikes, combined with more verbal intervention, could act to put a top in USD/JPY for the immediate term, the medium-term implications of tightening policy ring alarm bells to us that this would be a clear policy mistake, and ultimately hurt the Yen rather than help.

The BoE Hikes In Sept

AP Research — Thu, 16 Jul 2026 12:20:20 GMT

The ECB has shown its hand and already started tightening monetary policy. The Bank of England (BoE) isn’t far behind, with several of the same characteristics (e.g. imported energy inflation) at work here in the UK as are being shown in the Eurozone.

Therefore, the focus turns to when the MPC will pull the trigger and hike. In our view, July is a non-event, but September is both live and likely to see the first move. This isn’t currently being fully appreciated by SFIU6, with options providing an attractive payoff to put our flag in the sand.

SUMMARY

Hikes are indeed coming for the UK, with inflation expectations rising again and the Middle East conflict showing no signs of abating.
We favour September as the month to move as it allows the BoE to show a proactive stance without risking being caught behind the curve in Nov/Dec.
Current pricing provides an attractive payoff of 4:1 on a put condor for SFIU6 with limited risk.

Vol Is Too Cheap

AP Research — Fri, 10 Jul 2026 13:15:09 GMT

G10 FX implied volatility is near multi-year lows, with the JPM G10 FX Volatility Index hovering around 5.87% on a one-month basis, close to its lowest levels since 2024. There are several structural and macro forces converging to suppress vol, but opportunities for both hedging and speculating on both sides are becoming apparent.

We believe that, given the uncertain macro environment and the risk events on the calendar for Q3, it’s a good time for us to add vol-driven structures to the portfolio to help generate direction-agnostic profit from some G10 pairs.

Rebuilding the USD Bull Case

AP Research — Thu, 02 Jul 2026 17:33:26 GMT

Back in April, we published Entering Dollar Doldrums, in which we discussed why we believed the US Dollar was entering a period of treading water, with strong justifications for buying dips and selling rallies.

We have now taken profit on our EUR/USD structure from this view and feel it’s time to shift to what could be the FX pain trade for H2: a stronger USD.

With the NFP-induced flush-out today providing a much better entry point for fresh capital, we talk through the rationale behind the view and believe it’s a compelling trade to take on.

Taking Profit Before Tokyo Takes Aim

AP Research — Tue, 23 Jun 2026 12:32:35 GMT

A month ago, we added a long options structure on USD/JPY and wrote in the associated trade note that “the likelihood increases that USDJPY will trade higher and test the 2024 highs around 162.00, with the MoF likely building dry powder to buy as part of a coordinated action with the US.”

We printed highs yesterday of 161.90, with us taking profit on the call spread earlier in the day. The risk/reward of remaining long at current levels doesn’t stack up for us, especially with this morning's headline about a call between US Treasury Sec. Bessent and Japan’s Katayama, in which both countries are aligned on FX policy.

Here’s where we likely trade in the coming weeks, and the medium-term implications of such actions.

The Asymmetric Gold Trade

AP Research — Tue, 16 Jun 2026 12:06:00 GMT

Year-to-date, the weakness in XAU/USD can broadly be attributed to elevated energy prices, which have led to inflationary concerns and ultimately translated into higher yields, raising the opportunity cost of holding gold.

Yet with gold now down 20% from the January highs, and the higher-for-longer rates narrative well established, we think now could be the time to start re-adding long exposure to the precious metal.

Given the World Gold Council survey released today, it seems like we’re not the only ones taking this side of the trade.

Won Way Traffic

AP Research — Tue, 09 Jun 2026 11:02:27 GMT

The South Korean Won (KRW) has experienced sharp weakness year-to-date, recently hitting the lowest level against the greenback since 2009. With the Kospi breaking records almost daily, thanks to the likes of SK Hynix and other equity names catching bids, the conventional EM correlation between the currency and the stock market has evaporated.

Even though there are reasons for this below the surface, the emerging dynamic, coupled with incorporating an equity view into our FX&Rates world, means we now look to step in as KRW buyers as we anticipate the next leg of this macro trade playing out.

Three Curves, One Message

AP Research — Tue, 02 Jun 2026 10:02:15 GMT

The key message from US, EU, and UK curves is not dovishness. Markets have taken some heat out of near-term policy pricing over the past week, but they are still refusing to underwrite a clean return to a hold-or-ease regime.

Across all three regions, front-end implied rates have shifted lower versus a week ago. But the shape of the curves still points to policy staying restrictive, and in some cases becoming more restrictive, for longer. Markets are marking down the immediacy of the inflation shock rather than declaring victory over inflation. That distinction matters because it changes how we should read the next move in rates.

What we are seeing is a selective repricing of hawkish tail risk, not a wholesale duration rally. Curves still carry the imprint of inflation credibility risk, fiscal supply pressure and term premium rebuilding. The country split matters.

United States: Less Hike Insurance, Not a Clean Duration Rally

The Insurance Hike Arrives

AP Research — Tue, 26 May 2026 18:09:22 GMT

A month ago, we noted in ‘The ECB’s Insurance Hike’ that “an insurance hike, likely in June or July, helps the ECB to retain credibility with the market without committing to a sustained hiking cycle.”

Today, we got a coordinated media hit from ECB members Schnabel and Lane that shifted a June hike from being probable to (what we believe) a done deal.

However, before everyone rushes to be a seller of ERZ6, the notion that a June hike leads to three or more hikes this year is still not something we believe should start to be considered in the conversation.

Knocking on 160’s Door Again

AP Research — Thu, 21 May 2026 15:15:35 GMT

USD/JPY continues to climb and retrace the losses from the FX intervention from the end of April. The 160.00 level is now firmly back in sight, setting us up for a compelling next couple of weeks of price action.

As we argued a few weeks ago in Between a Yen and a Hard Place , the trend for further Yen weakness is clear, given the unclear BoJ meeting, elevated inflation forecasts and general lack of conviction from the central bank that risks getting behind the curve.

Therefore, even though intervention risks above 160.00 rise again, the fundamental picture for the coming months does point to USD/JPY trading higher.

The Real Votes Early

AP Research — Thu, 14 May 2026 15:04:07 GMT

A sharp move lower in BRL/JPY yesterday can be put down to concerns around presidential hopeful Flávio Bolsonaro being linked to Daniel Vorcaro, the jailed former Banco Master CEO at the centre of a major fraud investigation.

Clearly, this isn’t just about political fraud, but rather the knock it provides for Bolsonaro in terms of credibility in his bid to oust President Lula come October.

The severity of the move surprised us, as we hadn’t anticipated such strong favouritism this early in the campaign towards Bolsonaro over Lula. This causes us to rethink our BRL/JPY long, even with the continued constructive macro backdrop, and take partial profit.

Policy Friction Down Under

AP Research — Tue, 05 May 2026 13:43:25 GMT

After profiting from being long AUD earlier this year, we have been waiting for better entry levels over the past month to initiate fresh longs.

However, the RBA meeting today has led us to shift our AUD conviction from bullish to neutral, given rising tensions between the central bank and the government over policy actions.

With the government budget coming next Tuesday, an increasingly uncertain economic outlook is emerging, with the net result for consumers unclear.

Add in the inflationary pressure spilling over from the Middle East conflict, and we think the scope for further gains in being long Aussie has now all but evaporated.