Trade Of The Week - page 2
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USD/JPY: Buy At Low 110, Sell At Over 115
In the short term, we may need to be alert to the risk of a correction to this USD/JPY rapid rally. The cause could be any of several factors, such as questions over the viability of US policies or politics, a weakening in emerging market or resource price trends leading to a high dollar, recurring concerns on China’s capital outflow, or political uncertainties with major EU elections. On the other hand, we feel that the rally, though led largely by expectations, has not fully discounted the policies of the incoming Trump government, which remain highly indeterminate. As such, we believe the USD/JPY still has ample upside once Donald Trump takes office.
From a supply/demand perspective, we feel the USD/JPY will be underpinned at ¥110 or lower on buying on weakness by pension funds and life insurers. Some importers have seen their long-term hedge for USD buying knocked out and may move to acquire dollars at an even higher level. The USD/JPY has been steadily supported by such buyers.
Overseas USD/JPY bulls should try the upside with a close eye on these trends and on the viability of the Trump administration's policies. We believe Japanese exporters should quietly smooth their activity and undertake USD sell hedging in line with this uptrend. We do not rule out a possible upswing in the USD/JPY to over ¥115. This trend might last beyond next year and into 2018.
Based on this understanding, we recommend a tactical approach of buying at the low ¥110 level or below and selling expeditiously at over ¥115.
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Citi Trade Of The Week: Buy NZD/USD
Currency investors should consider buying NZD/USD this week, advises CitiFX in its weekly FX pick to clients.
"Buy NZD/USD at 0.7078, target 0.7225, stop loss 0.6990," Citi advises.
*Citi weekly trades provide short term guidance on where they see 1-2 week opportunities in G10 FX markets. Unless Citi explicitly extends them, they will be closed out automatically at COB the second Friday after they are introduced.
Sell AUD/JPY Into Next Week
The AUD/JPY has pushed notably higher, delivering a substantial windfall for Japanese investors who typically hold AUD rates products unhedged.
This move does look stretched and we note the currency has seen sharp reversals from this level several times in 2016.
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Steeper Path For USD Upside But Caution Extrapolating A Sharper Move N-Term
The informational content for markets from today’s FOMC meeting was not that it hiked rates 25bp but rather the subtle hawkish signals regarding the outlook for monetary policy. These suggest an increased risk of a steeper path for USD appreciation,.
For the USD and FX markets, we believe this Fed narrative poses risks to our base case of a consolidation of the USD uptrend into yearend, a view that we believe was shared by the market. This is likely to accentuate the broad USD rally further in the short term, as monetary policy is likely to reach neutral rate levels faster than previously expected.
This is especially likely versus currencies with monetary policies that are likely to remain accommodative, leading to wider interest rate differentials, such as versus the EUR (and linked currencies such as the Scandies) and the JPY rather than, say, the CAD and the AUD.
Currencies of countries with large external financing needs are unlikely to get a reprieve as the USD and US interest rates rise – EM currencies such as the ZAR, TRY, COP, and MXN stand out.
In addition, such moves may put further pressure on domestic capital outflows in China and hasten the depreciation of the CNY (or CNH) versus the USD.
Finally, we would caution against extrapolating a sharper nearterm USD uptrend as being suggestive of getting closer to the mediumterm endpoint of the USD move. Just as the uncertainty surrounding the Trump policy platform (the prioritization and formulation) remains significant; the potential mediumterm economic effect is also likely to remain uncertain, which is likely to prevent a full pricing in of the new set of policies.
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Morgan Stanley piles into cable shorts in trade of the week
Trade of the week from Morgan Stanley
Morgan Stanley is on point with its trade o the week. They argue for selling cable at spot with a target of 1.1700 and a stop at 1.2300.
The pound opened just below 1.2300 and is down 136 pips to 1.2150 on Brexit talk.
At present, that sets up 150 pips of risk and 450 pips of potential profit.
Trade Of The Week: Sell USD Vs An Equally Weighted Basket Of JPY, EUR, And GBP.
While we retain our broadly bullish USD view for this year, impending US political risk may lead to some near-term USD consolidation against major currencies. The relatively light agenda for the JPY, EUR, and GBP make them three likely candidates for investors to reduce long dollar positions.
Moreover, all three currencies were indicated among the favourite short among the respondents of the Global Macro Survey. Hence, we are able to take an anti-“consensus” view. We recommend avoiding short USD positions against CAD, AUD, and NZD, however, as they are more exposed to Trump’s protectionist measures.
We target 2% appreciation of the JPY, EUR and GBP equally weighted basket versus the USD, with a stop-loss of 1%.
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USD: Still A Momentum Trade; Selling EUR/USD Via Options
The USD has struggled to extend its gains in the first weeks of the new year. Market participants appear wary of committing too aggressively to a consensus trade so early in the year, particularly given the correction seen in Q1 2016.
We view the recent price action as a temporary correction and not the start of a sustained USD pullback. We note that recent USD weakness has not been accompanied by a significant deterioration in the risk environment or US macroeconomic data.
We think USD momentum remains intact and favour using corrections like these to add cautiously to long USD exposure.
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Citi Trade Of The Week: Sell EUR/JPY
Currency investors should consider selling EUR/JPY this week, advises CitiFX in its weekly FX pick to clients.
"Sell at 122.05, target 119.60, stop loss 123.60," Citi advises.
*Citi weekly trades provide short term guidance on where they see 1-2 week opportunities in G10 FX markets. Unless Citi explicitly extends them, they will be closed out automatically at COB the second Friday after they are introduced.
Citi trade of the week: Sell GBP/USD
The trade idea of the week from Citigroup
Consider selling GBP/USD this week, advises CitiFX in its weekly FX pick to clients.
Sell at 1.2548, target 1.2310, stop loss 1.2685," Citi advises.