Top Trade Ideas - August 19th

The Jackson Hole Symposium takes center stage this week.

In G10 FX, the erratic price action in the DXY continued, with it making back post-CPI related losses on Wednesday, gaining ground thanks to Retail Sales on Thursday, before giving it all back to close the week lower.

Strong equities have led to a return of the carry trade. Not to the extent of before, but the strategy will still be in play. Recent volatility in the strategy has not killed the allure.

Strong US data is seeing rate-cut bets scaled back, amplifying the desire to borrow cheaply and invest in high-yielding assets and the strong tech sector.

The Week Ahead

The Jackson Hole Symposium takes centre stage as markets continue to firm up bets that Federal Reserve rate cuts are coming soon.

PMIs take the temperature of European economies, with surveys also assessing the level of confidence among consumers. Decisions by Sweden’s and Turkey’s central banks will also be in focus.

Central bank action also dominates in Asia, with announcements due from South Korea, China, Thailand and Indonesia as rate cuts from New Zealand and the Philippines have set the stage to start unwinding restrictive monetary policy in the region.

FX

Intraday traders that were both long and short last week likely got stopped out on both sides, given the moves.

As the market stills tries to digest what’s going on, we head into a lighter data week but one that sees Chair Powell speak at Jackson Hole on Friday (and other Fed speak during the week).

From our perspective, the recent data prints (aside from the payrolls report) have been solid. Inflation is providing no nasty upside surprises and the consumer appears to still be doing well. IJC’s don’t back up the horror story of NFP’s.

Therefore, we expect that Powell and Co will likely be in the same mood as the last Fed meeting, in that cuts are coming but not to panic. This should help to price out more of the stretched positioning in the rate space, maybe even bringing us back to a 25 / 25/ 25 cut schedule as more nailed on.

This is likely USD bullish, supported by rising yields. From a technical perspective, the two previous moves towards 102 were snapped up quickly. A tight stop just below 102 gives us protection.

TRADE IDEA - DXY REPRICING

Entry: 102.40

Stop Loss: 101.95

Take Profit: 104.40

Two weeks ago we shared our trade for being tactically long a EUR/USD call spread at 1.0950/1.1050, which played out nicely with the market closing at 1.1027 on Friday.

We struggle to see the pair taking out 1.1050, but if it does, then 1.1100 also offers resistance as we can note from 2023 price action. On the two occasions that it has managed to take out 1.1100, it hasn’t managed to hold on to the gains for any meaningful period of time.

Therefore, we like to sell a one-month 1.1100 call for 0.37% in small size as a position we’ll look to add to if the FOMC minutes surprise us.

TRADE IDEA - SELL A MELT UP ON EUR/USD

Sell a 1-month expiry 1.1100 strike Call and receive 0.37%