Top Trade Ideas - July 15th
A seismic shift in markets.
In G10 FX, the DXY moved lower following Thursday’s lower-than-expected US CPI inflation print. This was also a tailwind for small-cap equities while big tech sold off. However, a strong Friday session saw most stocks move higher, with the S&P reaching yet another all-time high. How many more weeks do you think we can keep including that last bit?
Other major events last week included the weekend headlines. Trump survived an assassination attempt. Markets have already been pricing in a Trump win over the last few weeks. The assassination attempt adds some more fuel to that trend (odds of a Trump win moved higher over the last 24 hours), but we doubt we’ll see any major moves in the Trump basket. We’re likely to see bigger moves in the more meme-type names, like DJT etc. More on that later.
The Week Ahead
US economic data will continue to be scrutinised as investors speculate whether the Federal Reserve could start cutting interest rates as early as September. Focus will also centre on a European Central Bank decision, where rates are expected to be left on hold after a first rate cut in June. Inflation data from the UK and Canada and a rate decision in South Africa are also standout events for the week ahead.
China takes the spotlight in Asia as an economic-reform-themed summit gets underway, and a stream of key data shows how the world’s second-largest economy is holding up. Observation will be on China’s Q2 growth figures plus June activity releases to gauge the effectiveness of policymakers’ economic revival push.
Japan also has an inflation print in the coming days, as well as a Bank Indonesia meeting. Other releases include Australian jobs data, New Zealand’s Q2 inflation print, Singapore exports, and flash Q2 growth estimates for Malaysia.
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Onto the ideas for the week…
FX
The soft US inflation print last Thursday caused USD/JPY to move lower, closing the week close to the trend line that has held from the start of this year. At 157.90, we’re at a pivotal point heading into the new week.
We like to play the long side here. On the USD side, we see limited scope for further USD weakness. We don’t see the individual data print as a game changer for the Fed, and it shouldn’t materially change cuts priced for this year.
As for JPY, the problems in Japan haven’t changed and we see little reason to not buy the dip. As a side note, US retail sales on Tuesday could alter this from a technical angle, hence why we place a tight stop below the trend line.
TRADE IDEA - BUY THE DIP ON USD/JPY
Entry: 157.90
Take Profit: 159.90
Stop Loss: 157.40
Last week we outlined a short GBP/USD trade idea via the options market, but with a 3 month time horizon. This week we wanted to present a much more tactical trade based more around a technical side.
The pair closed the week just below 1.3000, the highest level in a year and close to a key psychological level. Although we retain our medium-term bearishness, a clean break above 1.3000 likely sees a fast move to 1.3140. Any failure to hold 1.3000 likely marks a top for the immediate future.
The UK inflation print and US retail sales numbers will also be an influence to watch here.
TRADE IDEA - TACTICAL TOP FOR GBP/USD
Limit Order: 1.3000
Stop Loss: 1.3030
Take Profit: 1.2900
Commodities
Copper is reaching an interesting crossroads. A higher low was formed last week, but a break back towards 4.65 is needed to attract more buyers for a move back to 5.00.