Top Trade Ideas - September 18th
An action-packed week sets up plenty of opportunities in the markets.
Markets face a very busy 36-hour period this week. Key bank meetings will determine monetary policy across half of the Group of 20.
20th US Federal Reserve (FOMC)
21st Bank of England (BOE)
21st Swiss National Bank (SNB)
21st Riksbank (SEK)
21st Norges Bank (NOK)
22nd Bank of Japan (BOJ)
Advanced-economy central banks, accounting for six of the 10 most-traded currencies, may draw particular focus as global policymakers adapt to the theme US officials set out at Jackson Hole in August: that rates are likely to stay higher for longer.
No one will dare to declare that their job is done, even amid the prospect that central banks in countries from the UK to Switzerland on Thursday could open the door to a pause, as happened last week in the Eurozone.
These events are sure to provide some volatile moves across FX, equities and commodities.
The ECB may have raised rates to 4% last week, but the cuts to growth forecasts backed up our view that we have shared for the past couple of weeks that the Eurozone is experiencing stagflation.
We feel the broader market is catching up here and unwinding EUR/USD longs and becoming outright short. Last week we managed to break and hold below 1.0700 on the daily candles.
1.0635 appears to be a temporary double bottom, but we feel this is likely going to give way which should accelerate a move down to 1.0525. We believe the entry level is key here and look for a retest higher on Monday to get short.
TRADE IDEA - EUR FOR THE TRASH CAN
Limit Order: 1.0690
Take Profit: 1.0530
Stop Loss: 1.0750
There’s a 98% chance of no hike from the US Fed meeting on Wednesday. We actually see the meeting as a bit of a non-event and although there may be some knee-jerk reaction in spot, we struggle to see much of a follow through. The Fed seem to be in a happy spot with. If anything, Powell will lean on the side of being hawkish, given the inflation print and strong ISM data.
Our mildly bullish USD view does play well with our bearish GBP take, especially with UK inflation due out on Wednesday. It’s expected to rise from 6.8% to 7.1%, and stagflation chatter (much like the Eurozone) is in focus. This is likely going to be backed up with the Bank of England on Thursday, where we feel they will be forced to hike, but that GBP will take this as a negative.
Crucially, if GBPUSD clears 1.2370 and 1.2315, the trapdoor down to 1.2000 opens up quickly.
TRADE IDEA - WAIT FOR GBPUSD TO BREAK LOWER
Limit Order: 1.2305
Take Profit: 1.2150
Stop Loss: 1.2390
We take a look at one more FX trade on our watch this week before taking a dive into the US equity market, with an important FOMC meeting waiting on Wednesday. Finally, we highlight two commodities that we have thoughts on.
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