Top Trade Ideas - June 17th

A busy week for FX and bond markets.

The most important global events are likely to affect FX and bond markets in the week ahead. Investors will be paying close attention to multiple interest-rate decisions, including those in the UK, Australia, China, Indonesia, Switzerland, and Norway.

The upcoming snap elections in France, with the first voting round scheduled for June 30, will keep investors on edge, focusing particularly on French government bonds and banking stocks. The strong backing for Marine Le Pen’s far-right National Rally party, as indicated by opinion polls, is causing concerns about potential political deadlock and increased government spending. The release of the European Commission’s report on excessive deficit procedures on Wednesday is likely to draw significant attention from the markets.

In G10 FX, we had a wild Wednesday of price action in the DXY, which ultimately finished the week stronger after the inflation and Fed meeting. Economic data this week will continue to be watched closely, especially given the ongoing uncertainty surrounding the timing of interest-rate cuts. Federal Reserve policymakers had previously forecast only one rate cut for 2024, but recent data has indicated a slowdown in inflation.

In Asia, the focus will be on a new set of China data, including home prices, which will be analysed for indications of the effectiveness of the latest stimulus measures in boosting the economy, as well as inflation data from Japan.

FX

To begin with, we go to a setup that we flagged last week on USD/JPY. The wedge broke out on the high side clearly on Friday, with the BoJ being the main catalyst.

The meeting didn’t flag up any new news on further rate increases, and the lack of specifics on bond plans was enough to trigger Yen selling.

From here, we feel it’s only a matter of time before 160 gets tested again, especially when you have a USD bid from the change in the dot plots only looking for one Fed cut this year.

TRADE IDEA - 160 ON THE CARDS FOR USD/JPY

Entry: 157.37

Take Profit: 160.00

Stop Loss: 156.15

EUR had a tough week off the back of Macron’s surprise election call. Equities sold off hard and the currency fared poorly too. EUR/GBP broke lower but we don’t like being long GBP at these levels. Therefore, we like to play a break lower on getting long AUD vs EUR.

There’s cause for concern going forward for the Eurozone from the election results in the bag, but also for the uncertainty of what will happen in France in just a few weeks time.

EUR/AUD is looking for a break below 1.6120 to accelerate a move lower, and if we get a rebound in commods to start the week, we think this is a nice play lower. We set our stop just above Fridays high.

TRADE IDEA - MORE WOE IN STORE FOR EUR/AUD

Entry: 1.6180

Take Profit: 1.6000

Stop Loss: 1.6225

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