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From the Floor: Tone risk-off, JPY and USD firm – #SaxoStrats

  • JPY and USD firm, EM, EUR, commodity dollars weak
  • A lot of volatility in commodity dollars
  • Mueller investigation looks at Trump's businesses for Russia connections
  • Mueller probe could become more sensitive and explosive
  • Geopolitics, trade war risks and benign inflation sap commodity demand 
  • Third weekly loss on BCOM with key markets range-bound
  • Crude oil remains stuck with rising US production being offset by robust demand
  • Gold on the defensive – it usually weakens before a Fed rate hike


By Clare MacCarthy

The final day of the week finds forex markets in risk-off mode with both the Japanese yen and the US dollar firmer but others, including the euro, commodity dollars and emerging markets currencies trending weaker. Among commodities themselves, geopolitical risk and benign inflation are sapping demand.

"We are seeing a strong dollar and an even stronger Japanese as well as a bit of weakness in the commodity dollars. In AUDUSD we saw an attempt at breaking below 77.50 which was rejected. But the rally hasn't really impressed and now we're back lower," says John J Hardy, Saxo's head of FX strategy. "Looking at the longer-term fundamentals for Australia, we're very sceptical, I'm not sure whether they're even supportive at this level," he adds.

 Source: Saxo Bank

Meanwhile, the Trump presidential circus continues to pose a risk for markets with the latest development being news that the Mueller investigation has begun looking into the president's businesses for Russian connections. "This will get a bit more sensitive and explosive if something is revealed as this is going beyond the collusion stage," notes Hardy. 

Ole Hansen, Saxo's head of commodity strategy says that the markets he tracks are already being affected by the Mueller probe: "Overall we are seeing geopolitics and now also a benign inflation outlook sapping demand for commodities, including oil, gold and copper. We're heading for a third weekly loss in the Bloomberg commodity index."

Crude oil remains stuck with rising US production being offset by robust demand. However, the downside is limited due to heightened risk of supply disruptions from Iran (US sanctions return) and not least Venezuela, says Hansen.

Finally today, gold is still on the defensive ahead of the upcoming Fed policy meeting and its almost 100%-certain rate hike. But there's nothing unusual in this – gold weakened ahead of four out of the last five rate hikes only to rally strongly afterwards. 


The Mueller investigation inches closer to the commander-in-chief himself. Pic: Shutterstock


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