Dollar primed
The dollar rallied Friday and there seems little to be standing in the way of further gains this week with EUR/USD in particular, looking set for a sharp move that could take out 1.1000 to move towards potentially as low as 1.0700.
The pair hit its lowest weekly close since 2003 on Friday as the USD Index surged to a 10-year high of 95.50.
EUR/USD was at 1.11760 at 0755 GMT.
"The dollar surged higher on Friday and that was despite some unexpectedly stronger German CPI and a horrific Chicago PMI," says John J Hardy, head of forex strategy at Saxo Bank. "EURUSD hitting that lowest close since 2003 is setting up a move to 1.10 at least."
"USD/JPY might also be ready to join this party with the 120 handle key," he says.
For now, the pair is capped at just below that 120 level (119.848 at 0755 GMT) having moved up sharply from 119.40 at the start of the Asian session, says the Singapore desk's Christoffer Moltke-Leth.
China cut
Moltke-Leth says the Asian session was largely fueled by the People's Bank of China's 25 basis points cut to the benchmark one-year lending rate on Saturday.
"The PBoC's indicated that it will have a comprehensive set of tools at its disposal to fine tune the economy and stimulate growth," says Moltke-leth. "It also indicated that fiscal policy adjusment is needed to stabilise growth."
The move helped send USD/CNY higher but after an initial spike in AUD/USD, the Aussie succumbed to the dollar's strength despite that Chinese fillip.
"This was a logical move by the market despite the Chinese rate cut," says Hardy. "The rate cut itself is a sign of weakness but as far as the Aussie is concerned, we're looking for a continuation of Aussie lower to perhaps the 75.00 mark."
There is a growing consensus that tonight's Reserve Bank of Australia meeting will see a further rate cut adding to the pressure on AUD.
Watching vols
One-month AUD/USD vols spiked to 12.3 to become the most volatile of the G10 pairs, perhaps led by those fluctuations in spot, says the FX Option Desk's Kresten Bechmann.
"All of this was accelerated by the news out of China," he says, pointing also to a stronger-than-expected PMI print.
One-month EUR/USD vols also moved higher to 9.75, but unless spot moves lower, "we expect vols to give way a little bit here," says Bechmann.
Shipping forecast
Danish shipping giant Maersk meanwhile, is shaping up as a potentially "very attractive pick", says Saxo Bank's head of equities Peter Garnry, on the back of a very good Q4 and its "26% earnings yield below its peers and historical averages, indicating it is definitely a value stock."
Garnry cites ROIC expansion, some prudent divestment strategies in place and, despite a post-Q4 print 10% share price jump, plenty of room to the upside in the stock.
"There is a massive repricing of Maersk shares going forward," says Garnry, even after they hit a five-year high on Friday.
The share price currently stands at DK 15,370. Garnry puts fair value at the DK 20,000 mark.
One caveat that remains, he says, is the ongoing weakness in oil prices.
Oil exposure
Talking of oil, and we frequently do in From the Floor, the two principal international benchmarks continue to rangebound even if the spread continues to hold at around the $13/barrel mark.
"The risk is still to the downside, particularly for WTI where the growth in US production and the slowdown in the reduction of rigs count means that there is little respite probably for this year,." says head of commodities Ole Hansen.
Hansen is more focused on the extension of long and short positions with the latter hitting a nine-year high, "probably on bets against Brent," he says.
"If we see a sudden breakout [of the current ranges], then we could see some additional fireworks as positions are getting a little too extended at this stage," he says.
Speculative positioning on oil could be an area of concern. Photo: istock
Gold's stand
Hansen also hails gold's stand against the dollar despite the greenback's clear strengthening over the weekend.
"If gold can make it above $1,223/oz, then it could be set again to test the $1,235/oz area," he says. "Near term, we could see it
higher but perhaps the best focus here is on XAU/EUR where we could see most of the action."
Your daily cuppa
Coffee meanwhile may be storing up some trouble ahead after "net long positions moved to their lowest in a year."
"The market might be too positive on production figures coming out of Brazil," says Hansen. "It's over extended to the downside."
Bonds retreat
Finally, that strong Gerrman CPI print on Friday forced bunds into something of a fall back from those highs of last week to hit 159.30 and to trade lower to 159.25 this morning, says the Fixed Income Desk's Michael Boye.