Long USDTWD on dollar squeeze, higher rates, EM pain — #SaxoStrats
- Negative USD consensus view and short USD positioning at extremes, as we feel that USD strength is going to follow a liftoff in US rates.
- Global yield rally should be short-term pain for emerging markets leading to potential outflows from places like Taiwan, in turn leading to currency depreciation.
- TWD has not moved as much as KRW and JPY have against the USD.
- Partial hedge to portfolios USD shorts (RUB and MXN).
- Hedge against potential North Korea / US conflict.
- Reversal of the move up in yields brought about by potential big CPI misses out of the US and Eurozone (recall that we had big beats on Flash PMIs two weeks ago from Germany and the Eurozone).
- A reversal in recent hawkish, less accommodative central bank theme.
- A sustained collapse in crude oil prices to below $40/barrel
- Same theme can be expressed being long USD versus the likes of short CHF, SGD and KRW.
- On USDJPY, we would prefer to play upside through call options as if there is a North Korea/US conflict or the risk of one, then USDJPY longs will get blown up.
- It is worth noting that I have been wrongly expecting (given that our USDJPY short stopped out last week) a quick and hard response from team US and Donald Trump. If we hear nothing soon, then the risk is very much to the upside. That is, if we had not seen the intercontinental missile launch, USDJPY would be making new 2017 highs and heading toward ¥116 from these ¥114 levels.
Entry: Long from 30.5850, above the current 30.536 levels.
Stop: 30.16. (For a little more conservative then 49.88, a touch below ytd low of 30.033)
Target: 50% at 31.18, 50% at 31.48 (could be subject to revision upwards, for example if we see near-term EM meltdown risks)
Time horizon: Two weeks to three months.
— Edited by Robert Ryan and Michael McKenna