Article / 31 August 2016 at 8:20 GMT

From the Floor: Pent-up dollar poised to unleash

Your Next Trade
  • Dollar on the march against all its major peers
  • Dollar momentum looks to be on the back of short-covering — Van Petersen
  • Nonfarm payrolls could spark much bigger move on dollar — Van Petersen
  • Data now the key to determining USDJPY, AUDUSD Options calls — Hardy
  • USDJPY move likely to be held at 104.50/105.0 until BoJ meeting — Hardy
  • FX Options show big gap in one-month implied vols and realised vols — Larsen
  • D-Day for Brazil's Rousseff as markets hope for guilty verdict — Boye


By Martin O'Rourke

Arise, sir dollar!

We'd got used to tracking a dollar performance through the summer that could be best described as lackadaisical but the first signs of autumn (to be fair, we've seen them for some time in Scandinavia) have brought dollar back into the ring and clearly ready to pack a punch.

Dollar was on the rise against all its major peers Wednesday morning forcing USDJPY to 103.0 plus, capping GBPUSD below the 1.31 handle and sending EURUSD towards 1.11.

"This has been a lot of short covering, but once people really start to go long the dollar and assuming nonfarm payrolls is not an abysmal numberyou are going to see a much much stronger bid going forward", says Saxo Bank's Asia macro strategist Kay Van-Petersen. "Macro guys and CTAs are starting to pick up dollar buying".

Saxo Bank head of forex strategy John J Hardy has two FX Options positions open predicated on a stronger dollar over the coming month. Both the AUDUSD and USDJPY views will be data dependent but another overnight boost for US confidence in August that helped mitigate a disappointing July number has kept the needle moving in the right direction.

"We want to hold on here to the big gains for the post-Bank of Japan September 21 meeting", says Hardy, on USDJPY. "If the data is strong, then the trade engages but if it isn't then we slide back into the central bank easing. I'm hoping of course it goes stronger but the risk there [September 21] is that it falls back and wipes out all of our gains".

As far as USDJPY spot is concerned, Hardy anticipates a cap at the 61.8% retracement level of 104.50 or at the top of an Ichimoku Cloud at 105.0 until the BoJ meeting is done. Spectacular NFP data nevertheless would disrupt that short-term scenario especially if it boosts the odds on a Federal Reserve rate interest move for September, adds Hardy.

USDJPY could be capped at the 104.50/105.0 area to September 21

 Source: SaxoTraderGO

Yen weakening has certainly been to the taste of Nikkei bulls meanwhile which has added nearly 2% on the day as the export-led index gets a welcome boost from the USDJPY interaction.

"This outperformance in Nikkei on what was a very mixed day for other Asian equities is absolutely a USDJPY grind up story", says Van Petersen.

The USDJPY/Nikkei correlation
 Source: Bloomberg

USD calls are also the order of the day in the FX Options space, reports Dan Juhl-Larsen from the FX Options desk, with a lot of the buying centred around the NFP.

Risk reversals are favouring the dollar following "a big push from the confidence boost" but Larsen points to "a big gap" between implied and realised volatilities.

"There is a big gap between what is being priced in and what is actually happening", says Larsen. "Take one-month EURUSD and the implied vols are at 8.25% and the realised vols are at 6.25%".

"Before we get too carried away on the dollar though, it is important to stress that much of the latest dollar move has been short-covering".

Rousseff D-day

Impeached Brazil president Dilma Rousseff gets to finally hear the verdict today (allowing for the odd delay or two) and markets are hoping for a guilty verdict from the senate.

"Brazilian assets will go haywire if it isn't but it is widely expected that the senate will vote her guilty", says Michael Boye, from Copenhagen's fixed income desk. "Although this may to an extent be priced in, there should be a slightly positive reaction even if buy the rumour, sell the fact could also enter the equation".

Brazil bonds have enjoyed better times since Rousseff was impeached

 Source: Bloomberg

And finally...

Saxo Bank's head of equities strategy Peter Garnry is pointing to a possible contrarian bet in EMEA on both developed and emerging markets. The discount on forward P/E and attractive relative dividend yields marks the underperformance out in the segment as "staggering" , he says.

But, as Garnry will be following up with a piece on TradingFloor in the very near future, we'll delve no more into this one for now. Definitely one to watch out for!

 Dollar looks like it is on the march and in unison. Photo: iStock

Martin O’Rourke is managing editor at

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.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail