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From The Floor: A Day Of Caution

Published 11/21/2014, 04:40 AM
Updated 03/19/2019, 04:00 AM

Quiet on the eastern front
It was a quiet session in Asian markets, says Martin Davis, a trader at Saxo's Singapore hub. The day's trading saw the euro, Cable, Aussie and Kiwi dollars, and gold held in narrow ranges, but the main story was (you guessed it) USDJPY.

USDJPY trading saw the pair hit 1.1836 before trading back down to the figure; the pair was then placed in focus by Japanese finance minister Taro Aso's statement that the yen's recent weakening has been "too rapid", which saw USDJPY trade to a low of 1.1735.

Following these swings, the pair then ground slowly higher in tandem with the Nikkei, which closed up 0.3% for the day.
Too much focus on USDJPY?

It was a disappointing day in the markets for EURUSD bears, says Saxo Bank head of forex strategy John J Hardy. According to Hardy, yesterday's data releases — particularly the weak Eurozone Purchasing Managers Index figures, higher US Consumer Price Index data and the Federal Reserve Bank of Philadelphia's business activity release — seemed like they would have driven EURUSD lower.

EURUSD bears couldn't quite seal the deal yesterday. Photo: iStock

According to Hardy, some of the weakness in EURUSD price action may have been due to the "excessive focus" on USDJPY; looking at the EURUSD technicals, Hardy says that "there is, you could argue, a head and shoulders formation with a neckline around 1.2580", adding that a strong rally through that point could see the pair hit 1.28.

Ideally, Hardy emphasises, the pair should head lower, but the question remains whether this will be a technical or a data release-driven decline. According to Hardy, a move below 1.25 would represent a strong signal that the pair is heading towards range lows.

Volatility sells off
The big news from yesterday's session was the selloff in USDJPY volatilities, which tumbled from 12.75% to 11.4%. Saxo FX Options trader Jeppe Norup also notes that we did not break the 1.19 level in the USDJPY spot.

Elsewhere, new polling data in Switzerland suggest that voters are unlikely to send the Swiss National Bank on a gold-buying spree, with EURCHF volatilities selling off on the news.

US economy outperforms
Yesterday evening saw a report from the Philadelphia Fed that said US business activity is at its highest levels since 1993, citing employment and new orders figures that signalled a surging US economy.

According to Saxo Bank equities head Peter Garnry, traders looking to invest in the American economy should consider Goldman Sachs as an investment vehicle. Goldman Sachs, says Garnry, was mentioned in Saxo's quarterly outlook but the trade stopped out in the midst of October's volatile markets.

The company, he emphasised, remains very strong in terms of its position in the worlds of trading and (especially) mergers and acquisitions. According to Garnry, GS represents "a very good bid on the US economy".

In other news, and in the wake of NSA warnings that Chinese "cyberattacks" could take out US networks, Garny recommends Palo Alto Networks as a company that is on the forefront of network security and that could surge as these issues gain prominence. Finally, Garnry advises that "we are still buyers" of Chinese oil concern Sinopec; Sinopec was up by 2% yesterday after falling 25% from its September highs.

The great divergence
Speaking from Saxo Bank's fixed income trading desk, trader Michael Boye says that yesterday's session provided yet more evidence of the "great divergence" afoot in the bonds markets.

Thursday's trading saw weak German PMI data send bunds rallying as US CPI and housing data sent Treasury Bond yields surging. The growing difference between German and US yields signals the divergence of EU and US monetary policy.

Finally, Alibaba's big bond launch yesterday was every bit as "jumbo"-scaled as expected, with investor demand measured at over $57 billion. The bond sale itself was worth around $8 billion.

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