With Good Friday marking a day of market closures, FX and crypto trading experienced little to no movement. The session lacked notable news and remained quiet overall.
The US Secretary of State commented on the urgency of achieving a Russia-Ukraine peace deal. Meanwhile, European Central Bank officials mentioned a shift in focus towards growth due to anticipated slowdowns from US trade policies.
Potential Rate Cuts
The officials also pointed to the potential for rate cuts, influenced by a stronger euro and progress on controlling inflation. The American trading session is predicted to remain uneventful, with only a speech from a Federal Reserve official on the schedule.
Markets remained flat through the holiday lull, with liquidity predictably thin across foreign exchange and digital asset venues. Many desks were running with minimal staff, execution volumes were subdued, and the absence of decisive macroeconomic updates meant traders found little to react to. The calm atmosphere was largely expected given widespread closures and a calendar devoid of data—a pause before next week’s heavier flows.
Blinken’s comments on peace efforts tied to Eastern Europe reflected a broader pattern of geopolitical noise that, for the moment at least, failed to filter into pricing action. His insistence on the matter seemed more aimed at diplomatic persistence than a precursor to immediate risk repricing. For positioning, this held relevance only insofar as it caps upside on commodity-sensitive pairs, such as NOK and CAD, should tensions start to ease.
From Frankfurt, hints around shifting mandates at the monetary authority drew more attention under the surface. Schnabel and her peers appeared to suggest that the fight against inflation was gradually being won—turning eyes instead to GDP prints and broader domestic demand. As such, forward swaps began to price an easing path more confidently. The euro’s firmness has had a deflationary pull, granting central bankers additional breathing space. That said, the commentary did not veer into surprise territory, so the forward curve settled with minor adjustments, favouring June or July as first-live meetings for a cut.
Carry Trades and Rate Differentials
We’re watching carefully as carry trades begin to show early signs of rotation, particularly across emerging market FX. Rate differentials won’t sustain present flows if European easing is paired with continued US policy divergence. This complexity is one that systematic models may start to reflect in tighter vol targeting, and it’s worth recalibrating downside deltas accordingly.
In contrast, Bostic’s planned remarks later are unlikely to shift positioning unless he directly challenges the implied Fed path. Derivative markets are synthetically long front-end rates through options structures that don’t benefit from minor rhetorical tweaks. Moreover, labour data scheduled for next week will matter more. Until then, gamma remains better for monetisation than for directional bias.
Those trading options should be assessing whether recent compressions in realised volatility still justify long gamma structures, particularly in EURUSD and USDJPY, where implieds continue to decay faster than spot variance justifies. Consider skew changes and whether short-tenor topside hedges are priced efficiently—existing term sheets may not reflect new macro guidance.
As spreads in rates markets have narrowed, the reflexive bid under risk has grown stronger, but it is not unchallengeable. We’ve observed some early unwinds in yen-based funding legs, which merits caution for trades reliant on a perpetually soft JPY. Even modest reversal patterns, if unhedged, could retrace weeks of gains.
Stay attentive to forward guidance and mismatch in inflation assumptions; the recent quiet may not last much longer.
