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From the Floor: Cable to 1.40? — #SaxoStrats

   • Sterling surges on hawkish BoE meeting, Carney comments
   • Latest North Korean missile launch gets muted market response
   • 'Still a likelihood that geopolitics could trigger a correction': Garnry
   • Gold hovering 'in relative safety' around $1,330/oz: Hansen
   • Copper targeting $2.91/lb after soft Chinese data

By Michael McKenna

Markets expected the Bank of England to be too wrapped up in Brexit uncertainty to respond to the recent spate of bullish data. They were wrong, and the sterling rally that followed the BoE's 'hawkish hold' was only aided by comments made later in Thursday's session by governor Mark Carney who said that he is preparing for a rate hike in the coming months.

"GBP has a lot more room to rally from here," says Saxo Bank head of forex strategy John J Hardy, who also notes that Monetary Policy Committee perma-dove Gertjan Vlieghe will speak at 0850 GMT today, with sterling likely to prove reactive to his comments.

"The key level here is 1.35, which is both the financial crisis low and the post-Brexit area of resistance," says Hardy. "I think this level will prove soft, particularly on further USD weakness." (Read also Hardy's latest FX Update here on TradingFloor.)

Above 1.35, any further continuation could place 1.40 in view, Hardy concludes.


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Source: Saxo Bank 

As far as the dollar goes, today's retail sales update at 1230 GMT as well as the University of Michigan consumer survey at 1400 will determine today's tone, with the former being the most important data point.

The recently weak dollar has been a boon for equity investors who saw the S&P 500 hit a fresh high Wednesday, but Saxo Bank head of equity strategy Peter Garnry says the rally shows signs of potential fatigue.

"North Korea's latest missile launch didn't weigh on stocks to any great degree, with only a slight dip seen in Asia," says Garnry, "but there is still a risk that geopolitical risks could trigger a correction."

Looking to the downside, Garnry reiterates his view that 12,500 is the level to watch in the German Dax index, and any serious bout of risk-off sentiment could trigger a correction through that line.

Although North Korean belligerence appears to be affecting stocks less and less, Saxo Bank's head of commodity strategy Ole Hansen says it is still supporting gold, which is "hovering in relative safety around $1,330/oz."

"The band of resistance is between $1,337 and $1,342/oz," says Hansen, adding that traders may want to keep an eye on platinum which is trading at a multi-decade discount to the yellow metal.

In oil markets, Hansen says that he expects the spread between WTI and Brent crude to narrow as more US refineries resume operations after hurricane-inflicted damage, with refinery margins being a key metric to watch as they will determine the timing of the seasonal slowdown.

Finally, Hansen reports that soft Chinese data are causing copper to slip lower, and he is targeting $2.91/lb.


Sterling remains the man of the hour into today's session. Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank


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