Four 'high-conviction' trade ideas from Westpac

Analysts at Westpac are looking for a pullback in the US dollar to establish long positions on four fronts.

Here's what they say:

  • Sell EUR/USD at 1.1335, stop 1.1440. Softer IFO, EC surveys and Aug CPI data all encouraging hopes that the ECB can tweak policy next week (8 Sep). Brexit likely sees staff trim 0.2-0.3ppts off 2016/17 GDP, as good a catalyst as any for a policy tweak. A formal 6mth QE extension beyond March 2017 the favoured option. EUR should trade lower into the 8 Sep ECB (target 1.10) but ahead of that US ISM and payrolls may underwhelm (14 of 18 Aug payrolls have missed consensus) delivering better selling levels.

  • Sell GBP/USD at 1.3370, stop 1.3505. Fears of a post-Brexit confidence shock have been assuaged by solid retailing and survey releases, but the real effect of the vote is still to become apparent. Although the market is still heavily short GBP, rebounds have been minimal due in no small part to the enormity of BoE's easing programme, which effectively includes GBP weakness. The greater risk for GBP appears to be deeper declines if activity data show any weakness from the Brexit-vote.

  • Buy USD/CHF at 0.9620, stop 0.9525. A run at parity on the cards, especially if the ECB eases next week (8 Sep) via an extension of asset purchases.

  • Buy USD/CAD at 1.2905, stop 1.2760. Our tech and model signals look for sustained trade in USD/CAD above 1.30 but from a macro angle we are wary that a sustained uptick in the data is about to unfold as wildfire disruptions give way to recovery. A punchy 0.6% rise in June GDP may be a taste of what's to come.