Article / 17 August 2016 at 8:00 GMT

From the Floor: Hawkish Dudley lifts dollar, core yields

Your Next Trade
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From the Floor
By Michael McKenna

They say talk is cheap, but USD, Nikkei, and core bond investors may contest the point after a few choice remarks from New York Federal Reserve head William Dudley and Japanese "currency diplomat" Mastsugu Asakawa reversed a sagging dollar and reined in a runaway yen.

The resulting climate, says Saxo fixed income trader Michael Boye, also boosted core yields, along with yesterday's successful reverse gilt auction.

The Nikkei index gained about 1% on the day, reports Saxo's Edmund Liu from Singapore, who notes that the Japanese index was the lone significant green candle in today's Asian stocks session.

Beyond the charts, however, today's session also saw the approval of the Hong Kong/Shenzhen "Stock Connect" programme which will render a whole host of mainland shares available to foreign investors. With plentiful offerings from the technology and pharmaceutical sectors, Liu says the Shenzhen market is set to emerge as the "Nasdaq of Asia".

In the forex markets, the double-barrelled blast from Dudley (who said a Fed hiuke could come next month) and Asakawa (who stated that Tokyo would "respond" to further yen strength) hit the USDJPY hard, with the pair rocketing back from the sub-100.0 levels seen yesterday afternoon.

The yen is now trading at 100.83 versus USD, and Saxo Bank head of forex strategy John Hardy tells us that the 100 area may well have been a bottom for USDJPY in light of US and Japanese policy plans.

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Source: Saxo Bank 

Although the dollar is on the rise, sterling has inched up past 1.30 versus the Fed-assisted greenback and today's jobless numbers release at 0830 GMT will likely determine cable's direction on the day.

Today's session also featured a Federal Open Market Committee minutes release as well as a speech from the Fed's Bullard, so traders seeking more data on the central bank's normalisation plans will have plenty of tea leaves to read by the New York close.

Markets are currently pricing the odds of a September hike at 22%, but between Dudley's comments that markets were underpricing the chances of a hike and the recent nonfarm payrolls blowout, dollar traders could be forgiven for assuming the odds are significantly higher than that.

The dollar's comeback has come in tandem with some commodity weakness, with Saxo head of commodity strategy Ole Hansen reporting that the gold, silver and platinum charts are all showing inverted hammer patterns, signifying that a correction may be drawing near.

Hansen also reports that crude oil prices are flagging after a 12%, four-day rise that came on the back of verbal interventions from Russia and Opec as well as a sizeable short squeeze.

Now, says Hansen, focus has moved on from production freeze speculation and is looking towards US inventories. At present, API is reporting a minus 1 million barrel crude reduction, but also a 2 million barrel addition to gasoline supplies.

Ultimately, says Hansen, "the glut remains in place."

Hawk on the horizon
Hawks are beginning to be spotted over the Federal Reserve Banks of America. Photo: iStock 

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Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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