DM short risk off trade is winding down with risk of a re test this week (EM’s outperformed marginally). We see the decline exhausting this week with the dollar finding a foothold to trade higher particularly versus EM FX (EM’s will underperform). Europe hit our short cover levels with longs touted in Eurostoxx 50, Euro banks and harder hit US sectors. S&P needs proofing.
Long Japan Nikkei for a reaction rise of 1,500 points or 6%. USD/JPY due for turn below 112 with Risk to 110 and a rally cap at 116.40.
Cover AUD/JPY short for a Gain of 7%. Lock in JPY/KRW long for a gain of 15%.
Short Asian and EM FX as the bulk of dollar weakness is behind us (resumption of core dollar bull trend). CNH 6.45/50 USD rally support. Euro 1.13+ short zone for test swing.
Go long US high yield – HYG and JNK fresh lows were our Buy Points for a tactical rally of 8%. Add on a new low.
Gold – We bought in a first slice at 1,170 and looked to add below 1,200, closer to 1,150. Gold 1,320 is the next rally target.
Europe – Buy banks and Eurostoxx 50. Selling our long CAC/short DAX pair for a 2% gain. Covering DAX short for a gain of 14%.
EEM to ratchet toward 31-32. USD recovery will create stiff headwinds for any EM rally attempt.
Turkey short with 70k reaction and cover zone. Russia short from 740 with trailing stop at 706.
China will help shape Asian trade this week.
Asia longs: Bought Nikkei at 14,900 and will add. Buying India on capitulation near 6,500 as long as Bank 13,360 support holds. Taiwan on our monitor to buy on a gap lower within the bull wedge.
Asia shorts: Korea at 232. HK property. ASX 200 at 4,875 with trailing stop at 4,853. Singapore STI at 2,550 (must break lower support Monday). Re shorting Asia FX – THB, MYR and SGD.
Cycles – Expect the risk off decline to exhaust/turning to risk on into March with a risk speed bump in late February. EM’s face weaker currencies. Two pronged buy points if we re test lows this week.
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