- A general focus on a very strong risk appetite – Hardy
- RBA's lack of easing bias puts Aussie back on the bid
- Oz cut expectations drop from 71% to 58% – Moltke-Leth
- Sugar hits a bumpy patch and may face long liquidations – Hansen
- Equities defy Brexit risk and US labour market distress – Garnry
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By Clare MacCarthy
It's risk-on across the board this morning in everything from equities, through emerging markets and even junk bonds after Fed chair Janet Yellen virtually ruled out a summertime rate hike in the US, Saxo Bank's team of strategists explain in their morning conference call.
"The lack of timing in Yellen's discussion of rate hikes was the focus and was seen as dovish, obviously dropping any reference to time because of the embarrasssingly bad jobs report on Friday," says John J Hardy, head of FX strategy. "The Reserve Bank of Australia's lack of an easing bias has put Aussie back on the bid again and we're seeing a general focus on a very strong risk appetite."
In the wake of the NFP numbers and Yellen's comments yesterday market sentiment is clear, he adds: "Bad news is not bad news, it's still seen as 'Hooray, the Fed is not going to be hawkish' and that's good for global liquidity so we're seeing buying up of risky assets." In terms of forex markets that means interest in commodity currencies and emerging market currencies.
The resurgent risk appetite has driven all G3 currencies lower, among them the Japanese yen (chart below). "The range remains intact in USDJPY and to get going towards the upside we need to get through an Ichimoku Cloud. It'll happen eventually but we'll need to see the dollar recovering a bit, especially within the G3," Hardy explains.
Ichimoku cloud the signal for bulls....
Source: Saxo Bank. Create your own charts with SaxoTrader click here to learn more
Overnight, the upbeat mood saw Asian equities track their US counterparts higher while a soothingly "neutral and balanced" statement from the Reserve Bank of Australia saw the likelihood of a rate cut this year drop from 71% to 58%, says Christoffer Moltke-Leth, of Saxo's Singapore trading desk.
One odd event, he adds, was a very sharp 150-pip spike in GBPUSD but rather than being Brexit-related, it emerged that this was just a fat finger fumble distorting the market.
Worrying close in sugar yesterday considering a record long position:
Source: Saxo Bank
Not so sweet
Over in the commodities sphere, oil is "bumping along nicely and trying to add gains past $50/barrel," reports Saxo's Ole Hansen. But things are not quite so sweet for sugar which yesterday fell off the upward path it's been following for weeks and closed with a Shooting Star pattern. "If we close below yesterday's finish today there might be some long liquidation coming in because we do have some record long positions of more than 200,000 lots accumulated up til last Tuesday," Hansen says.
Equities, though, are bounding ahead on the risk-on swing despite the increasing likelihood of Brexit and the loss of momentum in the US labour market, says Peter Garnry, Saxo's head of equity strategy. This sentiment spurred the S&P 500 to its highest close of the year and in the options market it is now possible to buy downside protection on the S&P 500 for a 1.5% premium. "A reasonable price," says Garnry.
Janet Yellen has drawn in her hawkish wings. Pic: Federal Reserve
Clare MacCarthy is deputy editor at TradingFloor.com
Editor’s note: From the Floor takes advantage of TradingFloor.com'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.