A global bonds selloff has pushed yields up across the board towards post-Brexit highs while the anti-establishment wave sweeping the western world could force a 'No' vote on the Italian referendum in December.
Article / 25 May 2016 at 14:08 GMT

FX Board: Risk appetite rallies, shifting market's focus

Head of FX Strategy / Saxo Bank
  • Sterling shines as Brexit fears recede
  • Pound gains most evident in GBPJPY
  • USDJPY charts reveal bullish signals

New poll results show that more Britons are unwilling 
to see Europe end at the Channel. Photo: iStock

By John J Hardy

Key developments in FX today

  • The greenback was more mixed in today's trading as the focus was on a large shift in general market risk sentiment. The only currency able to sustain a notable rally against the greenback, however, was the still-rebounding pound, where a fresh UK poll signalled strong support for the "Remain" faction of the Brexit debate.
  • USDJPY has made a partial break of to the upside, so the next session or two is critical for establishing the market regime and where USD strength will manifest most convincingly. Further improvement in risk sentiment would suggest that USD strength should pick up most where the carry implications are strongest, i.e., against the very low- and negative-yielding/QE currencies like JPY, EUR and CHF. See the attached note for more on this.
  • Also note that silver is struggling in a key support zone that the bulls will want to remain intact if we're not to fully give up on the silver rally. Gold has more room for further consolidation without yet indicating a full trend reversal.


USDJPY poked back into the Ichimoku cloud today, a bullish development if it holds into the close. 

The top of the cloud is soon rapidly descending to current levels, so from here it will be more about whether the pair can pull all the way back to 112.00 to full reverse the prior selloff wave and then bull higher into the old range to 114.00-plus.


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Source: Saxo Bank 


Sterling's impressive comeback has been felt especially forcefully in GBPJPY as the yen has headed suddenly south on the resurgent risk sentiment. Note that key technical levels have come back into focus to the upside here - with an upside-down head and shoulders neckline arguably in play today (the yellow line) and note the break above the Ichimoku cloud.

Source: Saxo Bank 

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank

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FX Board for Wednesday, May 25, 2016


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