Synopsis:

TD discusses the recent volatility in FX markets, particularly in relation to the carry trade, and offers insights into their current positioning and strategy, including a bullish view on JPY during sell-offs and a short EUR/USD option play.

Key Points:

1. Carry Trade Dynamics:

   • Market Disruption: The recent market turmoil, particularly following the latest NFP report, has disrupted the previously steady carry trade environment.
   • Not a Dip-Buying Opportunity: TD suggests that the current environment does not represent a buying opportunity for the carry trade, indicating a potential pivot in the factors driving this strategy.

2. JPY Positioning:

   • High Tactical Flows: TD’s JPY positioning index is at multi-year highs, indicating a significant shift in tactical flows. This may be just the beginning of broader movements in the carry trade.
   • Buying Opportunity: TD views sell-offs in JPY as buying opportunities, particularly within the G10 currencies, aligning with a more defensive overall strategy.

3. EUR/USD Strategy:

   • Short Option Play: TD maintains a defensive stance by holding a short EUR/USD options play, which is consistent with their cautious outlook on the current market dynamics.

Conclusion:

TD recommends viewing JPY sell-offs as buying opportunities amid the recent disruption in the carry trade. Additionally, they hold a defensive position with a short EUR/USD option play, reflecting their cautious approach in the current market environment.