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Video / 16 January 2017 at 8:11 GMT

From the Floor: XAU, JPY soar as Brexit/Trump loom large — #SaxoStrats

#SaxoStrats
   • Hard Brexit fears fuel pound drop in Asia, risk-off dominates
   • SHCOMP loses 1.4%, brining it close to a test of downside support
   • Brexit, Trump uncertainty drives USDJPY to new lows
   • 'We could move much further down' in USDJPY before support: Hansen
   • Hedge funds raise bullish bets on gold 57% in week ending January 10
   • Oil prices giving room for US shale producers to increase output
   • Italian debt downgraded to BBB from A by DBRS: Boye

By Michael McKenna

Today’s Asian session saw GBP crater as fears of a ’hard Brexit’ intensified ahead of UK prime minister Theresa May’s major speech Tuesday. According to Singapore-based Saxo Bank trader Ryan Wu, the uncertainty took a significant bite out of risk sentiment as a whole, resulting a pronounced rise in gold prices as well as the Japanese yen.

Looming in the background of all this, of course, is the inauguration of president-elect Donald Trump Friday. Trump, says Saxo Bank commodities head Ole Hansen, spent the weekend making a series of his trademark “loose cannon” remarks in which he took a major swipe at German chancellor Angela Merket, the European Union (“the EU is a vehicle for Germany), and continued to deviate from what has been revealed as a largely bipartisan anti-Russian stance that includes the Democratic and mainstream Republican parties as well as US intelligence among its proponents.

“Trump’s statements are cause for concern from a global trade perspective,” says Hansen as the populist candidate’s desire to realign the US’ position relative to trade partners and geopolitical rivals alike boosts uncertainty surrounding the future trajectory of the world’s largest economy.

US markets are closed for Martin Luther King, Jr. day today, with Saxo fixed income trader Michael Boye noting that we are likely to see reduced liquidity across asset classes as a result.
Concerning USDJPY specifically, Ole Hansen notes that “we could drop much further” before support comes into view .

USDJPY

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Source: Saxo Bank

The yen’s risk-off strength was matched by perennial safe-haven gold as hedge funds increased their bullish bets on the commodity by 57% in the week ending January 10. “The rally has left recent shorts underwater,” says Hansen, adding that a move above $1,205/oz could put the $1,230/oz level into view.

In crude oil, markets appear to be rangebound with Hansen stating that WTI appears content to operate within the bounds of $51 and $54.5/barrel for the moment, with Brent in a corresponding $53.85-$57.65/b range.

“At the moment,” adds Hansen, “prices are high enough to prompt increased output from US shale producers with the COT report for the week ending January 10 showing a reduction in both long and short positions, leaving the net unchanged”.

Ahead of Trump’s inauguration and following UK PM May’s Brexit address, we have the European Central Bank out Thursday. Despite increased signs of scepticism regarding the central bank’s continued stimulus efforts, Michael Boye says that he expects ECB head Mario Draghi will retain a QE-supportive tone at this week’s outing.

Finally, adds Boye, Italian debt has been downgraded to BBB from A by credit rating agency DBRS, reflecting concerns about the country’s profoundly troubled financial sector as well as political uncertainty following the recent Constitutional referendum.

At the moment, it would appear as if markets as well as major world institutions are decidedly panicked about the twin threats to the twin threats to the status quo represented by Brexit and Trump.

Bank of England
Bank of England governor Mark Carney is out today at 1830 GMT, but the speech will likely offer little of substance ahead of PM May's Brexit address Tuesday. Photo: iStock 
 
Michael McKenna is an editor at TradingFloor.com

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