Top Trade Ideas - April 21st
Staying nimble in a regime where macro edges are fleeting.
Last week was quiet overall, as tariffs and trade deals took a backseat. The biggest headlines throughout the week stemmed from Trump’s comments on Truth Social, calling for the end of Jerome Powell’s term at the Federal Reserve.
Asked at the Economic Club of Chicago if he envisioned a “Fed put” in which the central bank intervened to calm markets, Powell said “no,” adding that too many questions exist about the impact of Trump’s policies. “We don’t know that yet, and until we know that, we can’t make informed decisions.”
As volatility picked up, investors turned to haven assets, including gold, which set a record high as prices on the precious metal climbed above $3,384 per ounce. The Swiss franc rallied while the dollar weakened as the deepening trade tensions dented conviction in the world’s reserve currency.
Equities had a muted week. The biggest move came in the middle of the week when Nvidia warned Trump’s new trade rules on semiconductors could cost the company over $5bn after the U.S. banned the company from selling its H20 chip in China.
The Week Ahead
Provisional U.S. purchasing managers’ surveys for April will be closely watched for signs of how businesses are reacting to President Trump’s announcement of sweeping tariffs. Equivalent surveys will also be released in the eurozone and the U.K. in an otherwise quiet week due to the Easter holidays.
Continued trade deal talks will be watched for any indications of Trump’s game plan. The weekend saw talks between the U.S. and Japan fall flat. The culture of deliberation foiled the art of the deal.
In Asia, a central bank decision in China is in focus as policymakers seek ways to support the economy amid an intensifying tariff battle with the U.S. Regional CPI prints will offer clues on monetary policy paths, with Japan’s inflation data in the spotlight as it holds trade talks with Washington. Elsewhere, market watchers will track South Korea’s growth figures and a rate decision by Indonesia’s central bank.
As is the case right now, there is more to say on the macro than the micro, so we’ll start the week’s thoughts and ideas in currency markets, before moving elsewhere.
FX
Last week, we presented two trades for what we believed were taking different sides of the risk barometer that would materialise in the week. As it happened, both trades turned out to go our way (long EUR/USD and long GBP/CHF).
In part, this reflects a slight dislocation with traditional correlations in the FX space, something that APFX Research looked at in more detail here.
USD/JPY looks set to test the 140.00 handle, largely due to further potential USD weakness. Yet at this level, some will look for the potential for a triple bottom, with others pointing to the diminishing chance of a BoJ rate hike for the coming months.
We think that the 140 area marks a good line in the sand, both for JPY to take a breather and also for USD to catch some form of relief rally. Therefore, we turn to the options space and look to trade a 144 strike call option with a knock-in barrier at 140.
TRADE IDEA - POSITIONING ON USD/JPY
Buy a three-month 144 call strike with a 140 down-and-in KI, costing 0.74%
Talking of triple bottoms, AUD/USD might have tried and failed for the fourth time last week to break above 0.6400. The USD weakness has been seen only to a point here, with sellers fading any move towards the figure.
Part of the lack of follow-through naturally comes from AUD’s ties with China, with commodity exports making the currency quite exposed. You’ve also got the RBA that has basically teed up a rate cut at the next meeting.
How to position on the pair really comes down to your view on if US/China trade tensions improve or not in the coming month. We’d argue that if they do, you’ll see a much larger bid in AUD than in USD. If 0.6400 does give way, beyond the 200 DMA at 0.6472, this has room to run back to 0.6600.
Therefore, having some exposure here in small size could be a nice alternative way of expressing a view on US/China outside of other asset classes.
TRADE IDEA - AUD/USD READY TO POP?
Buy a one-month 0.65 / 0.66 call spread, costing 0.49%, with a c. 4:1 max payoff
Commodities
WTI managed to break higher at the end of last week, rebounding from the sharp drop on both tariff concerns and OPEC+ plans to boost output.