Article / 30 May 2016 at 8:19 GMT

From the Floor: USD still going strong

  • USD index continues to climb
  • Japanese sales tax raise expected to be postponed
  • Upcoming Dong Energy IPO shows a transformative energy company with risks
  • Click on this link for a reply of our morning call 


By Clemens Bomsdorf

Possible future moves by the Federal Reserve are the centre of market attention today, the first full trading day after Janet Yellen's comments. It is a day which will likely see relatively low activity since markets in the US and UK are closed. 

From Asia, Kay Van Petersen from Saxo's Singapore desk reports an “interesting start” to the week as he notes that we see “a continuation of risk on after the very, very strong last week in particular in European and US equities.”

USDJPY since January:

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Source: Saxo Bank

The first trading day after Yellen’s comments showed support for the USD, which did take Kay van Petersen by surprise. He had expected consolidation after four weeks of grinding up. Instead, the DXY rose 40 basis points so far today. 

Markets are bit afraid that most are hawkish while Yellen in reality is more dovish than the rest, which she did not seem to show on Friday – which in turn led to more USD strength, says John J Hardy, head of FX strategy at Saxo Bank.

USDCNH and USDCNY remain under pressure while USDJPY breaks above the key 111 level. In Japan, a sales tax raise is expected to be delayed to October 2019 from 2017. Two years ago, such an increase led to a recession. Van Petersen expects a confirmation by prime minister Shinzo Abe on Wednesday. That should push USDPY higher, says Hardy.

This week is data dependent with tomorrow’s US April PCE Inflation and Friday’s NFP change being the main releases. Depending on the data announced, the June meeting could be used to set for a July move.  

“If we get the right mix of macro numbers and decisions from policy makers this week it could take the S&P 500 to new highs,” says Peter Garnry, Saxo's head of equity strategy. In Europe, the IPO of Danish utility company Dong will likemy prove interesting as well. It is priced at a 30% discount compared to peers. Garnry says the fair value is “ok”. One has to remember that it has a relatively high execution risk since it is not a classical power company, but a transformative utility company with big plans in offshore wind farms. 

"Large write-downs on assets are also a key risk to balance sheet deterioration which has previously been the case and also the main driver behind the 2014 capital injection with Goldman Sachs and ATP (Denmark's largest pension firm)," Garnry writes. 

Related to this, energy is balancing on a knife’s edge with rejection again in Brent at $50/barrel. “We maintain our negative view as long as this level is not broken,” notes Garnry. 

We are going to see low activity in fixed income today due to today’s closure of UK and US market. After Yellen’s announcement, we saw Treasury yields a bit higher, and this week's US data and the ECB’s forecast update on Thursday will be interesting, says Saxo fixed income trader Michael Boye. Thursday may see investors receive more details on its corporate bond buying programme which is to start in June. 

Bunds have been rejected at the 164 level once again and it looks like they are struggling to move much higher here. Instead, this might be the final break for lower level and higher yields. 

 Offshore windfarms are a risky asset for Danish energy giant 
Dong, which is set for IPO. Photo: iStock

Clemens Bomsdorf is consulting editor at

Editor’s note: From the Floor takes advantage of'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 


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