- EURUSD poised just below cycle highs
- GBPUSD near cycle highs despite lack of news
- Equity momentum extends on weak USD
- Equities still expected to weaken towards end of Q1
- Biotech shares rise on back of Biogen's 5% advance
- WTI holding above $60 but may be running out of steam
- Bond correlation with equities is back in business
- Emerging market bonds firmer on the weaker dollar
By Clare MacCarthy
The second trading day of 2018 finds markets in thrall to the still-weak dollar, with equities powering higher, WTI crude oil holding above $60/barrel and bonds moving in step with the equity market gains.
First, to forex, where EURUSD is poised just below cycle highs at 1.2092 and GBPUSD near cycle highs despite an absence of fresh news, reports John J Hardy, Saxo's head of FX strategy. As Hardy explained yesterday, the greenback weakness may be a reflection of increasing concern at the negative implications of the US tax bill for the national purse, but it may also be a "pause before the next bout of event risk" he says. But these event risks are unlikely to appear today as the only major items on the economic calendar – Federal Open Market Committee minutes and an ISM manufacturing update – are unlikely to spring any surprises. Instead, look ahead to Thursday's ADP employment survey and Friday's nonfarm payrolls as potential triggers for the next potential impetus.
EURUSD is within reach of cycle highs:
Source: Saxo Bank
In equities, the story for today is that the strong momentum of recent weeks is continuing with a good performance in Wall St yesterday followed by mostly firmer trading in Asia overnight. However, Peter Garnry, Saxo's head of equity strategy, says that this strength will not sustain permanently and he still expects a correction towards the end of the first quarter.
Meanwhile, in commodities, crude oil is settled nicely above $60 a barrel and gold is looking good above $1,300/oz, says Ole Hansen, Saxo's head of commodity strategy. That said,it would be unwise to try chasing gold much higher as "it's in need of consolidation following its longest run since 201". Oil is in a similar position in that while it continues to get support form raised geopolitical risks there is a danger that rising US shale production and a record speculative long could knock it backwards again.
Finally today, bonds are also being highly responsive to the US dollar's weakness with emerging markets doing particularly well, says Simon Fasdal, Saxo's head of fixed income. European high yield issues are a bit softer with Italian bonds depressed by the upcoming general election in that country.