U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift? 
Fed Officials Split as Powell Weighs December Interest Rate Cut 
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure 
Fed Meeting Sparks Division as Markets Brace for Possible Rate Cut 
Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes 
Japan’s Rising Inflation Strengthens Case for a Near-Term BOJ Rate Hike 
New RBNZ Governor Anna Breman Aims to Restore Stability After Tumultuous Years 
Bank of Korea Holds Interest Rates Steady as Weak Won Limits Policy Flexibility 
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close 
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential 
Japan’s Finance Minister Signals Alignment With BOJ as Rate Hike Speculation Grows 
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge 
Global Markets React to Strong U.S. Jobs Data and Rising Yields 
We have woken up this morning unsurprised by the Fed decision and the market response; indeed, the policymakers’ median forecast is now fully aligned with our call that there would be three further hikes in 2018, followed by another two in 2019. We don’t expect the Fed to change its tone or direction appreciably under the incoming Chair Powell.
As the ECB edges towards normalization, an undervalued euro has room to rise further, the tide of positioning (long euros) and yield differentials (still heavily in the dollar’s favor) is against the euro. The upshot is that progress from current levels towards ‘fair value’ somewhere closer to EURUSD 1.30, will be choppy and slow. EURUSD likely to gradually increase and reach the 1.23 level by the mid-year point. Tech is the sector with the highest exposure to international revenue, so a weaker dollar would be a tailwind. Moreover, the powerful worldwide tech cycle may not be dead yet and NASDAQ could surprise more on the upside.
The historically low level of volatility makes call premia cheap and the negative correlation between NDX and EURUSD dramatically enhances that cheapness. The recent leg down in the index is an interesting entry point into the trade.
The S&P500 could reach 2800 early next year on approval of tax reform and so is the case with NDX – increase exposure to this theme.
As a result, we advocate buying NDX Call 6-month 102.5% contingent on EURUSD above 1.235 for 0.85% – 77% discount to vanilla (3.7% for a 6-month 45Delta call) (References: NDX 6394pt, EURUSD 1.1818).
Risks: only the premium is at risk if the NDX ends up below its strike AND the EURUSD is not above its barrier at expiry.
Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards 57 levels (which is bullish). Hourly USD spot index was at shy above -113 (bearish) while articulating (at 11:57 GMT).
For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex
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