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As 2017 is a year to forget as the macro portfolio suffered and heading towards a fresh year of hope, a trio of relative value trade ideas for the holiday period comes to mine on the eve of Christmas to begin the new year with a bang.
As the EU-UK trade agreement is not a done deal yet and Euro area growth still outshines the UK, the economic boom in the eurozone is likely to continue. The continued positive sentiment amongst companies is suggesting that. While the IFO business index, for example, reached the highest level in almost 60 years in November, but it has marginally dipped in December (actual 117.2 versus previous 117.6). The strong growth is making the ECB council optimistic that inflation in the eurozone will rise medium term.
EURGBP is thus more likely to trend higher in coming weeks than break lower in our view. Look to buy EURGBP on a dip under 0.88, targeting 0.91 initially with a stop at 0.8690.
The technical analysis highlights a bullish engulfing pattern on EURGBP after the cross briefly tumbled to 0.87 last week. The trade would also benefit if the euro cross-currency basis were to bounce back after the new year.
Elsewhere, the short-covering Kiwi dollar rally has mostly run its course. Macroeconomic crosscurrents will restrain NZD as a G10 laggard in coming months. Time to restock on long AUDNZD. The NZD traded in a fairly narrow range overnight. Business confidence is the only data today that typically has any market impact.
Buy AUDNZD at 1.0920, targeting 1.14 with a stop at 1.0820, which is just under the 200-day moving average. NZD made a round trip from 0.7000 to 0.7027 and back. Antipodean thus nudges higher from 1.0910 to 1.0954 and should eventually give way to a retest of 1.12 as long as AU economic data remains supportive and AU commodity prices outperform
Finally, grab some NOKSEK as the cross retests the year’s lows. Buy NOKSEK at 1.01, targeting 1.05 with a stop at 1.00. The diverging policy outlooks between the Norges Bank and the Riksbank argue for a resumption of the broader NOKSEK uptrend from 2016.
The list of significant market events scheduled for this week is as follows:
Dec 19: US housing starts.
Dec 20: Riksbank meeting, and the US existing home sales.
Dec 21: NZ 3Q GDP, BoJ meeting, UK public finances, Canada CPI, US Philly Fed outlook, and US 3Q GDP.
Dec 22: France 3Q GDP, UK 3Q GDP, Canada Oct GDP, US personal income & spending, US durable goods orders, and US new home sales. Courtesy: SG
