Top Trade Ideas - November 18th
Can NVDA carry the markets?
Last week saw relative quietness as markets cooled their election trades. Bitcoin was the standout in the initial trading days, rallying to new ATHs.
Some hawkish comments from J Powell and co. ignited bets that the Fed will pause rates in December. However, several key data prints remain before the December 18th meeting, so we’re ignoring the noise on that front for now.
In G10 FX, the DXY marched higher, buoyed by the Fed comments and decent U.S. data prints. GBP continued to lose ground, with a negative MoM GDP reading on Friday compounding problems.
The Week Ahead
This week’s NVDA earnings (Thursday after market) may be the last major market mover of the year. Options markets indicate a 0.9% move in the S&P 500 after the results are out.
EUR and UK CPI are the macro events on a quiet calendar this week (Tuesday and Wednesday, respectively). Germany’s GDP data is due on Friday.
Continued poor investor sentiment out of the Eurozone (most recently German political headaches) coupled with U.S. equity optimism around President-Elect Trump has caused a sharp relative divergence between EU and U.S. assets. We may see Friday’s data print strengthen this trend and weigh more on EU assets.
FX
GBP/JPY had a key break of a recent trend channel on Friday, leading us to want to get tactically short.
It’s true that we are medium/long-term JPY bears, but we can’t ignore this move and are happy to lean into short GBP trades.
There were a couple of triggers for the move. One was better than forecast Japanese data, with GDP and Industrial Production. This could likely increase the chances of a BoJ hike in Dec. On the other hand, GDP MoM data for the UK contracted by -0.1%, in comparison to the expectation of a 0.2% gain.
The fact that the range has been broken could spell out a fast move to the downside in the coming days.
A risk is UK CPI on Wednesday, but any undershoot of the 2.2% expected (from 1.7% prior) would likely add to GBP bearishness.
TRADE IDEA - JUMPING ON SHORT GBP/JPY
Entry: 194.80
Take Profit: 189.65
Stop Loss: 197.15
Last week, we bought a 1.0600 strike Put for 18th Dec expiry with a spot ref of 1.0715. We closed the week at 1.0538.
Even though we’ll keep the option trade live for now, we are conscious of the size of the move lower and are cautious of some snapback in the coming weeks, either triggered by some profit-taking and closing of the books for some desks or natural risk reduction.
Therefore, we look to leave a limit order to get long both as a way to hedge out some risk from our Put and also to play for a potential tactical bounce back from oversold conditions.
TRADE IDEA - PARTIAL HEDGE ON EUR/USD
Limit Order: 1.0450
Take Profit: 1.0630
Stop Loss: 1.0390
Finally, we turn to AUD/USD. The pair has shifted lower over the past month, fuelled by the USD bid and also the underperformance of China weighing on AUD along with weaker commodity prices.