APFX Research

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.

Between a Yen and a Hard Place

AP Research — Tue, 28 Apr 2026 15:54:24 GMT

The Bank of Japan (BoJ) meeting earlier today was the first major G10 central bank meeting, with many looking for clues on how the respective bankers will position policy amid reflationary pressures.

Not for the first time, the BoJ made a bit of a hash of its meeting, issuing a mismatch of comments that saw the Yen initially appreciate before giving back all gains and then some.

When we dig into the details of the meeting and subsequent press conference, the desire to continue holding our short Yen position (expressed via a long BRL/JPY) remains firmly intact.

The ECB's Insurance Hike

AP Research — Tue, 21 Apr 2026 07:01:14 GMT

Speaking late last week, ECB President Lagarde said “we are between the baseline and the adverse” when referring to scenarios for the Iran war.

Euribor futures reflect this view, with the extreme lows having been bought in ERZ6 in recent weeks, but with no meaningful move back to pre-conflict February levels.

After revising our view in UnSTIRtain Times exactly a month ago, we continue to hold that the ECB will hike once this year, with the emerging dynamics increasingly supportive of this view.

Yet based on current ERZ6 pricing, there’s still a trade to be exploited.

Entering Dollar Doldrums

AP Research — Thu, 09 Apr 2026 13:53:20 GMT

Most on the Street currently sit at opposite ends of the spectrum regarding the US Dollar outlook. Binary forecasts for EUR/USD reflect this, with evolving Iran war implications seemingly pointing to a clear direction one way or the other for the coming months.

However, we sit in the middle, and expect the greenback to enter a consolidation phase in the coming months, with competing forces largely netting out most of the tail risks of a sharp move either way.

Granted, there’s a large disclaimer when discussing price action right now, given the ongoing conflict/ceasefire/agreement/lack of… but let’s spell things out as we see it.

Energy Over Politics for Now

AP Research — Tue, 31 Mar 2026 15:25:50 GMT

A BTG Pactual/Nexus poll published yesterday showed Brazil's President Lula da Silva and Senator ‌Flavio Bolsonaro tied at 46% in a potential run-off in the October elections.

Even though the election is far off, the sharp ground being made up by the junior Bolsonaro is notable and worthy of attention, especially given our most recent trade implementation of long BRL/JPY from Energy Is Repricing Carry last week.

We believe it is wise to map out the currency implications for the polling shift based on political movements to see if the risk is worth carrying.

Energy Is Repricing Carry

AP Research — Wed, 25 Mar 2026 13:13:34 GMT

The conflict in the Middle East has generated significant two-way price action, causing headaches for macro desks.

In the FX space, one theme isn’t providing anywhere near as much uncertainty, and is starting to gain more attention. We’re talking about a hybrid of the carry trade, with a bias toward net energy beneficiaries over pure interest-rate differentials.

Even with our view of de-escalation in the coming months, the underlying dynamics behind the theme could continue to offer gains from a total return perspective.

UnSTIRtain Times

AP Research — Fri, 20 Mar 2026 10:56:01 GMT

A week ago, we went long ERZ6 at 97.71 in what we called “a punchy call” on the idea that the short-end had moved too far too quickly in response to the conflict in the Middle East.

We were stopped out at 97.60 swiftly afterwards, with the contract now trading at 97.16. Although we don’t like to engage in hyperbole, it has truly been a historic move not only in the European contract but also in other G10 equivalents.

With us having already gotten over the frustration of such a swift trade exit, the uncertain lay of the land makes clear thinking all the more important as we set out our chessboard from here.

The ECB Won't Hike In 2026

AP Research — Tue, 10 Mar 2026 15:42:52 GMT

Last week, we addressed the sharp move at the short end of the curve for several G10 nations, triggered by inflationary concerns stemming from the spike in energy prices.

With prices still elevated and the promise from President Trump of a quick win not yet materialising, more chatter is out there that the nations most sensitive to an inflationary shock will be forced to look towards interest rate hikes.

One of the most spoken of is the European Central Bank (ECB), where GC member Muller said today the chances of the next change in policy rate is more towards an increase than a decrease.

Yet does it really make sense to price for an ECB hike as we currently stand?