Top Trade Ideas - September 30th
China provides more opportunities.
Last week, China news swept the headlines, taking Chinese equities, industrial metals and European luxury goods higher, to name just a few. Oil was about the only asset class that didn’t receive the risk-on news.
In fact, hedging China positions has been thrown out of the door, and Asia’s Monday session has seen the CSI 300 up another 7%.
In G10 FX, we had some whippy price action around month/quarter end, notably USDJPY on the surprise new PM and GBPUSD, which kept trying to post a daily close above 1.3425 (and failing).
What’s in store next?
The Week Ahead
U.S. jobs data will take centre stage as investors look ahead to how much and how fast the Federal Reserve will reduce interest rates from here after its jumbo rate cut earlier this month.
In Europe, eurozone inflation data will be firmly in the spotlight as speculation grows that the European Central Bank could cut interest rates again in October.
In Asia, the focus will be on purchasing managers’ surveys and inflation data, with a close eye on any potential further stimulus announcements out of China.
Let’s get to the ideas from the team across global assets.
FX
We wrote in detail about our outlook for the DXY last Friday. Although the dynamics expressed within the piece are more medium-term through to the end of the year, we do see a short-term setup play on the index.
The move over the past week has seen dips being bought at 100.15-100.25. Below this, the 100.00 level is good support, followed by the 2023 lows at 99.60. It therefore offers a good risk/reward to leave an order at 100.00, with a stop below the 2023 lows. On the upside, 102.00 is our line in the sand where any rallies could be faded by others. With this setup, it presents a 4:1 RR.
TRADE IDEA - STACKING R/R ON DXY
Limit Order: 100.00
Stop Loss: 99.50
Take Profit: 102.00
Sticking with USD legs, we have just over a month until the US election. Therefore, we look to put on one play now that is a direct expression of potential USD strength from it.
We pick EUR/USD partly because we are happy to be short EUR here given the miserable situation in the German manufacturing sector as well as an uninspiring ECB that we don’t think will act as a pillar for EUR strength.
We note the good resistance at 1.1275 from summer 2023, and so sell a Call above that at 1.1350. We use the proceeds from this to buy a 1.1075 put (shown in green), with our target level down in the 1.07-1.09 area. Specific details shown below.
TRADE IDEA - EUR/USD RISK REVERSAL PLAY
Sell a 31st Dec 2024 1.1350 strike Call and buy a 1.1075 Put with same expiry for a net zero initial cost.
Our final FX idea before moving into other asset classes is a very tactical one, based on the news late last week of a slightly surprising victory for the new Japanese PM, Shigeru Ishiba. Known as not being a fan of Abenomics or a devalued Yen, as well as being a China hawk and wanting the BoJ to normalise monetary policy, there could be a lot of fireworks on Yen pairs this week as traders fully digest the move.