Westpac Sees Dollar Index Lower, Targets Trade Ideas

Westpac has identified three trade ideas for investors to consider. The bank's analysts believe that the US dollar could see another leg lower, and they recommend selling the Dollar Index (DXY) on a break of 99.40. This level has served as key support over the past two months, and Westpac is targeting a move down to 98.00 with a stop at 99.90.

The catalyst for this potential move lower could come from a benign July CPI report in the US, combined with progress towards reopening the Strait. However, Westpac notes that they are waiting for a technical break rather than trying to front-run it.

Elsewhere, Westpac is sticking with its long GBP basket trade, which was entered on July 10. This involves buying sterling against the US dollar, euro, Swiss franc, and Swedish krona, with the largest weighting against EUR. The target for this trade is 105 from a 100 entry, with a stop at 98.

Westpac believes that this trade is less about a booming UK economy and more about removing a political discount that had been embedded in the currency. Finally, the bank is watching AUD/NZD closely around 1.2000, where attempts to break lower have failed in both July and August. However, Westpac still likes the idea of selling a convincing break lower in this pair.