Top Trade Ideas - July 1st

A new week presents new opportunities in markets.

In G10 FX, quarter-end flows dominated price action, with the US dollar in demand for transactional purposes. The break to fresh highs on USDJPY was the biggest conversation driver during the week.

In the upcoming week, European investors will closely track political developments as a new quarter begins, while in the US, attention will shift to jobs data and the timing of potential interest rate cuts by the Federal Reserve.

Market focus will initially be on the outcome of the first round of French parliamentary elections on Sunday, where Le Pen has won 33% of he votes. Additionally, anticipation will build for the final run-off on July 7. Meanwhile, the UK is set to hold elections on July 4, where the opposition Labour Party is projected to emerge victorious.

The European Central Bank will host a symposium in Sintra, Portugal, from Monday to Wednesday, featuring notable speakers such as Federal Reserve Chair Jerome Powell and ECB President Christine Lagarde.

In Asia, the main emphasis will be on a series of PMI and CPI releases during what is otherwise a relatively quiet week for data. Attention will also be drawn to the minutes from the Australian central bank’s recent meeting and key data releases, including retail sales and trade figures, which will provide insights into the country’s monetary policy trajectory.

Japanese data releases will include updated growth numbers and business sentiment indicators. Additionally, traders will keep an eye on yen movements and their potential impact on policy responses.

FX

The break higher on USDJPY above 160 and the previous YTD high came in a remarkably easy fashion. If anything, we thought it would offer more resistance, even without an MoF involvement.

The lack of this indicates to us that the pair is now set for a move to at least 165 in the coming month(s). The MoF are focused more about the pace of a move higher, so the risk we see is that we get a swift move in the next week towards 165 which then is met with a jawboning move back below 160.

However, if the market is orderly, then we see a limited risk of sudden 100 pip moves lower in the space of a minute.

Fundamentally, Japanese core inflation fell last week to 1.8% from 2.2% previously. Tightening monetary policy might protect the Yen but it will quash inflation which really isn’t a smart idea for the Japanese economy.

Don’t get us wrong, the powers that be are stuck between a rock and a hard place, but as for USDJPY, it’s likely a one way train higher in the short term.

TRADE IDEA - MORE OF THE SAME ON USD/JPY

Entry: 160.80

Stop Loss: 159.90

Take Profit: 164.80

We admit that we missed the boat initially on getting back long AUDCHF. The dip was bought in size last week and for good reason. With the SNB now two cuts in to the loosening of monetary policy, we see legs for many to sell CHF and use it as a funder for carry trades.

As for AUD, cuts are being priced out due to more stubborn inflation and a rather hawkish RBA (arguably the least dovish G10 central bank). So, when we pair AUD against CHF, we feel traders are catching on to this growing interest rate differential.

We like this as a play not only for this week but also for coming weeks, targeting a medium-term move to fresh highs around 0.6150.

TRADE IDEA - THE AUD/CHF CARRY TRADE

Entry: 0.5995

Stop Loss: 0.5945

Take Profit: 0.6150

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