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Video / 09 February 2018 at 8:40 GMT

From the Floor: 'Stay on your toes, keep risk to a minimum'

  • Risk contagion spreads to Asia but still very equity centered
  • JPY is stronger but mostly within its recent trading range 
  • Emerging market currencies starting to show nerves
  • Hawkish Bank of England meant brief rally for GBP
  • Traders need to watch 200-day moving averages in major indices
  • An ugly close today could open up for further volatility next week
  • Bottom line – stay on your toes and keep risk to a minimum

By Clare MacCarthy

Yesterday's lurch lower by Wall St equities has been followed by an Asian downturn as contagion seeped into the region, raising fears that an ugly close ahead of the weekend could open up for further volatility next week.

The message from John J Hardy, Saxo's head of forex strategy is clear: "Stay on your toes and keep risk to a minimum". 

"Chinese equities are almost nearing a crash-style selloff, we're seeing the 200-day moving average looking like its attempting to survive into the close in China's key index after trading well below that level. And in the US the spike lower overnight was caught right at its 200-day moving average which is about 25.35 on the future and 25.38 on the cash index. Keep these in mind, this is pretty scary stuff as we're heading into the weekend and I think today's close on the equity markets is very important for establishing whether this is going to stop here now or whether we risk some sort of further decline in risk appetite and in these indices," Hardy says.

And what if US stocks take a further dive down today? "If the US [equity] indices close on a very ugly note today then that sets up a very nervous weekend with risk managers scrambling to figure out what to do. That was the classic setup in 1987 if we're to draw the most terrible parallels when we saw an ugly Friday close followed by the Monday which had the crash close," he cautions.

And the bottom line? Again, "Stay on your toes and keep risk to a minimum if you can," Hardy advises.

JPY is stronger but mostly within its recent trading range:
Source: Saxo Bank 


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