Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 11 October 2016 at 8:37 GMT

From the Floor: USD spreads its wings as US yields rise — #SaxoStrats

Your Next Trade
  • Pricing for a Fed hike has risen to 68% from 64% – Moltke-Leth
  • US interest rates are the key thing to watch today – Hardy
  • Dollar continues its grind higher post-NFP – Hardy
  • Twitter is back in our model portfolio again – Garnry
  • We maintain decent exposure to Japanese equities – Garnry
By Clare MacCarthy

As the European session opens on Tuesday, the US dollar is pushing higher against a Brexit-beleaguered sterling, the yield on 10-year Treasuries is continuing its ascent and leading stock indices across the continent are trading narrowly mixed following a lacklustre Asian session, Saxo Bank's strategists report in their daily Global Market Call.

First up, the mighty dollar, whose continued grind higher is linked to increasing expectations that the Federal Reserve will soon increase official US interest rates. "The market pricing for a Fed hike has risen to 68% from 64% yesterday and Goldman Sachs is pegging the likelihood at 75%," reports Christoffer Moltke-Leth from Saxo's Singapore trading hub.

Watching for confirmation of bigger USD move in the wake of the US nonfarm payrolls:
Source: SaxoTraderGO

"The dollar is spreading its wings as key US yields have headed higher with the 10-year now at 1.75%," says John J Hardy, Saxo's head of FX strategy. "In euro-dollar the key thing is Friday's very sharp rejection of the attempt to break through key support in the low 1.1100s, and that's a direct function of the rising trend in US yields." 

As to the focus from here, Hardy says that higher rates and riskier assets are two key areas to monitor.

US 10-year yield – the most important thing to watch today:
Source: Bloomberg

The corporate earnings season is getting into its stride and Peter Garnry, Saxo's head of equity strategy, has taken the opportunity to fine-tune his model portfolio. "We added Twitter again yesterday having bought at the open for $17.50. We also hit out profit target on the Nikkei and hit our stop-loss on the Hang Seng so we're out of both of them but we still have quite a lot of exposure to Japanese equities," he says. 

This exposure includes a position in Murata Manufacturing, which, though it scores low on name recognition is tracking strongly higher by dint of its position as a key sub-supplier to Apple. "I really think there's a good chance that we could hit the JPY18,000 target that we've set, especially if we see further upside pressure in USDJPY driven by the trend in US yields.

Twitter joined the portfolio again yesterday:
Source: Saxo Bank 

Fanuc, another Japanese industrial robotics company, has proved another strong component of the portfolio, having added 8% since inception. 

Murata – home of some of the most innovative robotics products around. Photo: Murata 


Clare MacCarthy is deputy editor at

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