From the Floor: The winds of change
- Oil prices fell as favourable winds reduced the fire threat in Canada to facilities
- USDCNH deserves most of our FX focus right now — Hardy
- Chinese authorities are the key factor for what we can expect in USDCNH
- Important US data is not due before Friday, until then look at Norway
- Munich Re issues a profit warning, but the Dax could still rise
By Clemens Bomsdorf
Politics always play a role in economics and of course in particular when it comes to less liberal countries such as China. That is why John J Hardy, head of FX strategy at Saxo Bank, stresses that Chinese authorities are the decisive factor when it comes to USDCNH — a currency pair that according to Hardy right now “deserves most of our focus in FX”.
The question is which movements in USDCNH will the Chinese authorities allow. The interest in this currency pair is back, notes Saxo trader Tareck Horchani from Signapore, and points to the fact that recently published trade data was weak.
“China [also] seems to have stopped buying commodities”, Horchani says. The price of Iron ore has dropped 23% since the April highs and all speculative buying has ground to a halt while hedge funds refocus on USD. Hence, there is a good chance USDCNH will break higher again.
EURUSD is also worth a look. “EURUSD is the last major dollar pair standing,” says Hardy.
When it comes to the US otherwise, there is no important data until Friday, when the April Retail Sales figures are published as well as the May University of Michigan sentiment.
Today the NOK is in focus after the selloff in oil yesterday and also because Norway comes with CPI data for March as well as Industrial Production today – the last data ahead of Friday’s Norges Bank meeting.
Peter Garnry, Saxo's head of equity strategy, has good and bad news from Germany, Europe’s biggest economy.
Munich Re, one of the major global reinsurers has issued a profit warning, which will put pressure on its share price after it downgraded expected net income for 2016 to €2.3 billion from €2.3-2.8 billion.
“I think Munich Re is to some extent feeling the pain we are seeing in the whole financial sector,” says Garnry. However, for the Dax as a whole — in which Munic Re has a 3.6% weight in (as of end of the first quarter) — Garnry is relatively positive.
Good German export data could mean it will go back to 10,500 over the coming weeks.
Also Danish jewellery company Pandora is doing pretty well and lifted its FY2016 revenue guidance on the back of strong Q1 data. Hence, the short position may not have panned out, but, according to Garnry, there might be downside to come.Today Allergan and Walt Disney are next on the earnings roster.
A change in the direction the wind is blowing in Canada reduced the immediate thread from the wildfires threatening oil producing facilities says Ole Hansen, Saxo's head of commodity strategy, hence diminishing the risk of a production stop.
Brent crude broke the technical support at $44.20/barrel.
In gold support is there, but physical demand in India, typically a big buyer of physical gold, is relatively weak leaving paper demand to bolster the precious metal.
Saxo's fixed income trader Michael Boye shows us again the close link between politics and economics. In Brazil the real weakened and so did assets because of the "impending" impeachment vote and the confusion enveloping it.
Brazilian bonds were less affected, neverthless, and stable around 5.5%
Clemens Bomsdorf is consulting 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.