Top Trade Ideas - October 28th
Market musings on multi-assets as we head into the final week before the U.S. election.
“The goal of a successful trader is to make the best trades. Money is secondary.”
– Alexander Elder
Last week, USD continued its recent gains, even though key pairs (USD/GBP and USD/EUR) traded in very tight ranges.
The S&P failed to continue its winning streak, as prices closed lower on Friday. Tesla’s blowout earnings captured the headlines, but Musk has now set a very high bar for his company (and we know he’s in the habit of falling short of expectations). A McDonald’s E. coli scare saw the company fall 7.5% on the week.
Bonds continued to fall under pressure, and the story isn’t helped by a challenging calendar ahead.
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The Week Ahead
Markets are readying for a barrage of data this week, including Chinese economic activity readings, Eurozone and U.S. growth prints (U.S. core PCE), as well as a payrolls report to help position portfolios into year-end.
Five of the MAG7 companies report earnings this week: Alphabet on Tuesday, Meta/Microsoft on Wednesday and Amazon/Apple on Thursday.
The US bond market, already stung by the worst selloff in six months, now heads into a crucial two-week stretch that will likely chart its course for the rest of the year.
A series of market-moving events are coming in rapid succession, kicked off by the Treasury Department’s announcement Wednesday on the scale of its coming debt sales.
FX
We start with currency market thoughts before moving to equities and commodities.
The U.S. Dollar has performed well recently, and although we still see strength into year-end (something we covered yesterday), we acknowledge that some large players might be closing their books or squaring off risk ahead of Friday’s NFP and the U.S. election.
Therefore, we see the potential for a tactical melt-up/shorting opportunity and look to express this by leaving a limit order on USD/CHF.
We target the descending trend line which comes into play around 0.8720. With a tight stop above it, we play for a short-term move lower and will look to ideally trim some profit and move the stop up to flat to potentially give us a free trade into Friday and early next week.
TRADE IDEA - TACTICAL USD SHORT
Limit Order: 0.8720
Stop Loss: 0.8755
Take Profit: 50% at 0.8620, leave the rest to run
We’ve traded the renewed weakness in the Yen fairly well over the past month or so and don’t feel that the trend is going to change in the short term. However, we look to provide an alternative to the USD leg this week and so turn to getting long EUR/JPY.
The bar for Eurozone data is now very low and even if inflation data on Thursday comes in lower than expected, we see little scope for material EUR weakness given the current dovish ECB pricing through to year end and into Q1.
From a technical perspective, the break above 164.00, with dips on Thursday and Friday bought at this level, tells us that this should act to provide a base with which bulls can build on this week, with 167.25 our level for profit taking.
TRADE IDEA - LIKELY EUR/JPY GAINS ABOVE 164
Entry: 164.43
Take Profit: 167.25
Stop Loss: 163.75
While we’re on the topic of EUR trades, we wanted to flag up the YTD regression channel that EUR/GBP has been in.