Positioning for short Nikkei, things to get worse before they get better

Strategic Trade / Sell

Kay Van-Petersen

Global Macro Strategist
Kay Van-Petersen joined Saxo Bank in 2014 as a Global Macro Strategist, based in Singapore. He focuses on delivering strategies and analyses across asset classes based on monetary & fiscal policies, global geopolitical landscapes as well as other macroeconomic fundamentals. He also takes into account market sentiment, technical and momentum factors.

Instrument: NK225c1
Price Target: Index level 21,660
Market Price: Index level 21,730

Background:

Trade tariffs and trade wars are just shifting into higher gear. The combination of potential auto tariffs, a stronger yen and risk-off could set the scene for a triple hit for the Nikkei, which is also struggling technically (it has broken through its 200-day moving average and is failing to hold above 22,000). 

I think its only a question of time before we see the next round of tariffs from the US, and potentially more announcement this Friday or over the weekend. 

Management And Risk Description:

Position is 1x capital, so for the Macro Monday book that is circa $10m.

The potential key risk here is that trade disputes get solved sooner rather than later, leading to a relief rally in the Nikkei. A weaker yen could also complicate manners as that tends to be supportive for the Nikkei.

Trading Plan

For now its putting out a line on the short side on the Nikkei, looking to potentially add to the short at the 22,000 level – if we get there. And then to add a long S&P futures leg, so this is very much building out from a portfolio composition of the Macro Monday trading book.

Parameters:

Entry: 21,730
Stop:  –
Target: 21,660
Time Horizon:  Strategic

   

-- Edited by

Clare MacCarthy

Nikkei index.                                                                                                                                           Source: Saxo Bank

Nikkei and JPY 5-year.                                                                                                                          Source: Saxo Bank

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