Article / 13 July 2016 at 8:17 GMT

From the Floor: USDJPY push repelled at 105.0

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  • USDJPY repelled at 105.0 after helicopter-money-talk dampener
  • Rally in USDJPY so far "pretty modest" — Hardy
  • UK housing index release for June to show some of the Brexit impact — Hardy
  • Gold finds solid support and momentum still in place — Hansen
  • Copper hitches ride on South China Sea row for two-month high — Hansen
  • "Bumpy ride" for Tesla as valuations look extreme — Garnry
  • Financial bonds lag in Europe could see opportunity if Italy crisis solved — Boye
 By Martin O'Rourke

'Copter grounded

The speculation that Japan might be ready to unleash so-called helicopter money to the tune of 
up to $199 billion was derailed overnight after cabinet minister Yoshihide Suga dismissed the suggestion that the government and Bank of Japan are planning something imminently.

That intervention pulled the rug from under a USDJPY move higher that came within a whisker of sending the pair through 105.0 and forced the currency back below 104.50. 

"The rise in USDJPY certainly has neutralised most of the post-Brexit reaction but the rally is pretty modest and it would need to get through 105.0 to really suggest momentum has changed", says John J Hardy, head of forex strategy at Saxo Bank. "Expect USDJPY to remain rangebound for some time".

USDJPY has pushed back towards 105.0 but needs a break beyond to confirm a change in sentiment
 Source: SaxoTraderGO

A sterling rally meanwhile, looks somewhat "suspicious" after a wave of buying that more or less mirrored the wave of selling that helped send it to 31-year lows last week, says Hardy. The rally may now have petered out just south of the 1.33 mark and Saxo's forex chief says that may have something to do with a consolidation of yen strength applying some breaks to the sterling rally.

"All the currencies like AUD and NZD that were doing well yesterday are weaker today after Suga's comments", he says.

Hardy is more focused on the key RICS UK housing survey which releases its findings for June this evening.

"It will be interesting to get a sense of how this very good indicator of the state of the UK housing market has been affected by Brexit even if only the last bit of the month covers the post-Brexit era", says Hardy. "There was already a massive deceleration in May".

Gold ballast

The risk-on sentiment that dominated the earlier part of the week inevitably stymied gold's rise towards $1,400/oz, but there is good reason to believe that, having found support at $1,327/oz, the precious metal remains in "good health".

Who says so? None other than Saxo Bank's head of commodities strategy Ole Hansen.

"Gold remains in good health as long as we stay above the $1,300/oz area", he says. "Trading is very technical at the moment having found support at the 38.2% retracement".

Edmund Liu from Saxo Bank's Singapore hub adds that the "the gold supportive level [at $1,327/oz] is a key turnaround and is indicative of a switch in risk sentiment".

Gold was at $1,341/oz at 0655 GMT.

Copper meanwhile is on a three-day tearup seemingly bolstered by a wave of demand in China that may have something to with the ongoing South China Sea row. 

"Copper has jumped to 225, the highest since May", says Hansen. "There is actually a wall of supply of copper to come on to the market so this move up will be capped".

Gold needs to avoid a slide below $1,300/oz before we can talk about a serious correction
 Source: Bloomberg

Tesla's 'bumpy ride'

Teslas's "bumpy ride" in 2016, as Saxo equities chief Peter Garnry coins it, could get worse.

"Sell Tesla as the execution risk is extremely high", says Garnry. "If you take the current valuation and consider it primarily as a car company other than the other things it wants to be, then to justify it they need to grow revenue to about $56 billion in US dollar annual terms — 3% of the global sector — and in the last 12 months, they generated $4bn".

"Next year, that is expected to hit $10bn".

"I actually think it can't be achieved given the order book and bearing in mind the acquisition of SolarCity too so we are now moving into negative territory in our view on Tesla".

And finally...

The Italian banking crisis may not have gone away, but a general recovery in corporate bonds beyond the pre-Brexit levels is yet to be followed by financials and this could be a potential opportunity, says fixed income trader Michael Boye.

"XOVER dropped below the pre-Brexit line recovering all the losses since June 23", he says. "Financial bonds, especially in Europe, are still lagging and if we get a solution to the Italian banking crisis, there could be opportunity here".

Chinese manouevrings in the South China Sea have
helped swell copper to a two-month high. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

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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