Video

Playlist

Show less
Video / 09 January 2017 at 8:39 GMT

From the Floor: Sterling cracking after May speech — #SaxoStrats

#SaxoStrats
   • Sterling slides more than 200 basis points after May's Brexit speech
   • Sterling at weakest for  'couple of months' as May signals likely EU exit — Hardy
   • USDCNH biggest two-day slide since June 2016 takes pair to just under 6.88
   • Dollar back on track as nonfarm payrolls shows recovery on track
   • USDJPY rising, EURUSD needs to hold below 1.0450 for downside case — Hardy
   • NFP puts roadblock on gold rally with $1,161/oz support test likely — Hansen
   • Yields shift higher on the back of NFP, bunds out to 162 — Boye

j

By Martin O'Rourke

Sterling clattered

UK prime minister Theresa May perhaps did not mean it, but the fallout from her Brexit speech this weekend has sent sterling once more towards the edge Monday morning.

From a relatively lofty starting point close to the 1.24 handle, GBPUSD plunged some 200 basis points during the Asia session to slide beneath 1.22.


“Sterling is in its most defensive position for the past couple of months,” says John J Hardy, Saxo Bank’s head of forex strategy. “The move came on the back of May’s indications that it is extremely likely that the UK will leave the single market because of the so-called red lines of immigration and the European Court of Justice.”

“Sterling is collapsing to new lows and we’re going to be talking about 1.20 here and perhaps lower,” said Hardy, as the UK leader once again shifts towards a hard-Brexit platform.

May clatters Sterling towards new lows:
l


Source: SaxoTraderGO

Sterling weakness is one thing, dollar strength is another and the latter has regained some of its chutzpah after a dig beneath the headlines of last week’s on-the-surface disappointment for the nonfarm payrolls showed the US recovery is on track.

“Average hourly earnings were the key and there is also a good chance that next month’s report will see more of a boost ,” says Saxo’s forex chief.

For now, most of that strength is playing out in GBPUSD and to a slightly lesser extent in USDJPY which has returned to the 117.00-plus area, but the follow through in EURUSD is yet to happen, notes Hardy.

“I think this is partly due to all the focus on GBPUSD,” he says, “but I’d like to see 1.0450 taken out before we can say the downside case is firmed up.”

“We’ve seen some tremendous squeezes back and forth. Bulls, if there are any, need to see this 1.0670 area give way, the 61.8% retracement.”

EURUSD bears will be looking for a break below 1.0450:
k


Source: SaxoTraderGO

USDCNH, meanwhile, slid to its biggest two-day fall since June 2016 to just beneath the 6.88 mark after Beijing reported a $41 billion draw on its reserves for December, down from the $69bn figure for November.

“Reserves have got very close to the $3 trillion handle,” reports Ryan Wu from the Singapore hub. “This is the sixth-straight month of falls and it is very likely that we will go below that level next time.”

Gold dimmed

NFP may have been a boon for dollar but it’s provided little in the way of cheer for gold which is once again looking over its shoulder at that $1,173/oz zone.

“We got firmer US yields on the back of the NFP and that has taken a bit of the shine off gold,” says Saxo Bank’s head of commodities strategy Ole Hansen. “Gold is back at $1,173/oz but there is no particular interest to buy at these levels.”

“We might need to see gold test $1,161/oz.”

US-10 year Treasuries yields were once again back out to 2.4%, and bunds are out to 162, reports Michael Boye from the fixed income desk in Copenhagen, while Australian and New Zealand 10-year yields both shifted wider to 2.76% and 3.27%, Singapore-based Ryan Wu notes.

Gold nets fell for the eighth straight week to an 11-month low and is now down 88% from its July peak, notes Hansen. The silver-net long meanwhile has stabilised over the last three months and now rather unusually exceeds the gold position.

Elsewhere, oil is stuck in rangebound territory after the early year excitement with potential supply concerns over Nigeria offset by a rising US oil rigs count.

And finally…

Italy’s slipped off the radar this past month since the Italian referendum defeat for prime minister Matteo Renzi, but it faces a stiff challenge this week if it fails ratings agency DBRS’ review test.
“All the major ratings agencies have put Italy to B status and if DBRS aligns with that, then we could have some big implications for Italy,” says Boye.

j

 Sometimes it is just better to watch and observe. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

09 January
Martin O'Rourke Martin O'Rourke
GBPUSD at 1.2141 at 0953 GMT.
09 January
Arvydas Dabulskis Arvydas Dabulskis
last speaker audio quality very poor
Relevant articles for you

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com 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 Tradingfloor.com 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 Tradingfloor.com 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 Tradingfloor.com or as a result of the use of the Tradingfloor.com. 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 Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com 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