Top Trade Ideas - August 5th

Blood in the streets.

Last week saw traders pivot into new sectors as employment data suggests rate cuts are coming for different reasons.

In G10 FX, the sharp repricing of rate expectations following the worst NFP print since Aug 2021 saw the DXY drop below the 200 DMA at 104.29. Gains were led by JPY and CHF, with the EUR also gaining 1.2% on Friday vs USD, the largest daily increase since 2016.

The Week Ahead

The upcoming week is relatively quiet, with the US ISM data on services sector activity and the interest-rate decision in Australia being the main focal points. In addition, we will see rate decisions in India and Mexico. Japanese data will be closely monitored following the Bank of Japan’s recent interest-rate hike.

FX

If you wanted to sum up the impact of the risk-off move that we’ve seen over the past couple of weeks (and especially on Friday), then look no further than AUD/CHF.

It’s a classic cross whereby you have the high beta Aussie against the safe haven Franc.

The pair has given up all of the year-to-date gains within the past month and, importantly, closed below both the support in the low 0.56’s and broke the 0.5600 barrier on Friday. In closing at 0.5586, it sent us a clear signal that another leg lower is due.

In this no-man’s land, the next support on the downside is the 2020 pandemic lows at 0.5342.

The RBA meeting on Tuesday is an event risk, but given the pivot in market pricing away from a hike, we’re happy to be short going into the meeting.

TRADE IDEA - SELL THE BREAK ON AUD/CHF

Entry: 0.5586

Take Profit: 0.5350

Stop Loss: 0.5660

Our EUR/GBP call options finished nicely in the money from last week, but this week we like to pivot to EUR/USD given the poor employment data from Friday.

We feel EUR/USD has more legs to run higher than GBP/USD when you consider the price action of EUR/GBP.

We like to be tactically long here but are cautious about having too much exposure at spot. Therefore, we turn to the options space again and build a short term 2 week call spread at 1.0950 / 1.1050.

Even though USD shorts could pile on next week, we struggle to see EUR/USD materially moving beyond 1.1100.

TRADE IDEA - EUR/USD MOVING BACK TOWARDS YTD HIGHS

Buy a 2-week 1.0950 call and sell a 1.1050 call with a net cost of 0.27%. Targeting a move to 1.1050 for a circa 3.3:1 return