Top Trade Ideas - September 9th

All the chat for currencies, equities, commodities and rates.

September is living up to its nasty reputation as the most troublesome month, even if the Fed are about to reduce rates. Uncertainty is always the driver of fear, and markets have a lot of uncertainty right now. Although labour market data was released last week, markets are still very split on a 25 or 50bps cut decision.

In a thread we posted last week, we highlighted that over the past 15 years, there has only been a 3bps difference between the swap-implied expectation at the start of the Fed blackout period (which started yesterday) compared to what policymakers ultimately decide on. Friday’s trading saw rates markets swing within 3bps of either decision but settle the day (pretty much) in the middle of the two.

That sets up an interesting week and a half before the next FOMC.

In G10 FX, the DXY once again tested and held the support level just above 100.50, with the week closing out with a decent bid from the payrolls report.

Week Ahead

U.S. inflation data for August take centre stage as investors anticipate that the Federal Reserve will start cutting interest rates this month. However, as the Fed have moved towards the labour part of their mandate (and inflation being tamed in recent months), we don’t think this will move the needle all that much… as long as the print isn’t far outside consensus. For those wondering, the consensus is 2.6% YoY.

The European Central Bank is expected to reduce interest rates when it announces a decision on Thursday.

A slew of data releases from China are in focus for Asia, as doubts continue to swirl about what the world’s second-largest economy is doing to boost consumption and keep its exports strong amid rising trade tensions.

A Q2 growth print from Japan is also on the calendar ahead of the central bank’s next meeting in September.

FX

The shooting star daily candle from Friday on GBPUSD is a pretty bearish signal to us, signalling that the pair could be at risk of a broader correction after the explosive rally during August.

This ties in with our broader long USD conviction, but in order for us to get excited, we need to see the pair break below the red-shaded rectangle, which equates to the 1.3090 - 1.3125 region. Previous moves down to here have been bought swiftly, but following the strong move on Friday we think that this time could be different.

We watch for U.K. employment data and U.S. CPI as potential catalysts here.

TRADE IDEA - GBP/USD BREAKING LOWER?

Limited Order: 1.3085

Take Profit: 1.2900

Stop Loss: 1.3155

In terms of eyeing up a risk-off play, we think EUR/CHF is a good contender. We have more confidence trading CHF than JPY as a haven, and feel that EUR/CHF looks heavy in the mid 0.93’s.

Should the markets pick up on Monday where they left off, CHF should be well supported, taking the pair lower. We cite 0.9300 and 0.9215 as key levels on the way down.

The ECB meeting on Thursday is unlikely to cause any major movement, given that the 25bps cut is priced in. However, we think there’s some risk of GDP forecasts being revised lower, so are happy to run a short into the meeting (or have a stop set at flat by the time it comes round on Thurs).

TRADE IDEA - RISK OFF ON EUR/CHF

Entry: 0.9347

Take Profit: 0.9215

Stop Loss: 0.9405

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