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From the Floor: Weekend risk factors aplenty — #SaxoStrats

   • Draghi tried to talk EUR down Thursday, but currency rises on data
   • China trade data soft for a second month, demand wavering
   • '1.10 is the breakout level in AUDNZD': Bresler
   • ECB outing confirms Saxo House View (neutral EU equities)
   • Bond yields, yen, geopolitics continue to support gold

By Michael McKenna

With the European Central Bank's Thursday meeting behind us and the results – stronger euro, weaker European shares – increasingly settled, markets are now looking to this weekend's panoply of risk events and weighting portfolios accordingly.

"It's just not the sort of weekend where you want to be long risk," cautions Saxo Bank deputy head of Sales Trading APAC Andrew Bresler. Noting both North Korea's Foundation Day holiday Saturday, when many observers expect a new nuclear weapons test, as well as expectations of Hurricane Irma making landfall in Florida, Bresler says that it is simply not a two-day period over which any forecasts see risk sentiment expanding.

Reporting from Saxo's Singapore hub, Bresler says that today's Asian session gave a few hints as to what traders might expect in European and US hours, most notably in terms of fixed income.

"US 10-year yields dipped two basis points lower overnight and look likely to head below 2% in Europe," says Bresler, adding that such a move could lead to a further capitulation in USD.

With USDJPY through the lows of 2017 and EURUSD back above the psychologically important 1.20 mark, USD weakness is emerging as a dominant theme in line with Saxo Bank chief economist Steen Jakobsen's view that we are entering a long-term dollar downtrend.

USD index
USD index

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Source: Saxo Bank 

Overnight Chinese trade data also lent weight to Jakobsen's perception of a cooling global economy led by a declining credit impulse. According to Bresler, the latest trade numbers show China's external demand flagging, and Saxo Bank head of commodities strategy Ole Hansen noted that this second month of weak numbers is unlikely to aid copper's toppy position.

Also in focus are European shares, and Saxo Bank head of equity strategy Peter Garnry says that the euro's strength after the ECB's statement Thursday confirms Saxo's House View of neutral EU stocks, positive US shares on a weaker dollar.

"We see the export sector of the European economy as likely to take a hit," explains Garnry.

Beyond the above, gold is seen supported into the risk-filled weekend, with the JPY, bond yields, and geopolitical tensions all boosting the yellow metal. "We are looking at $1,375-80/oz to the upside now," says Hansen, adding that this level represents the 38.2% Fibonacci retracement of the 2011-15 selloff.

"The 50% Fibo lies at $1,484/oz," Hansen says.

Finally, Garnry notes that the ECB's Jens Weidmann was scheduled to speak in Hamburg at 0900 GMT and he is likely to comment on the strong European economy. Following yesterday's ECB meeting, where the central bank kicked the QE can one month down the road to October while noting that it is watching the exchange rate closely, Garnry says that investors should look to "fade the rally in the Dax".

Hamburg, Germany: The euro rally isn't leaving much room 
for further equities expansion. Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank


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