John J Hardy
Saxo Bank’s head of FX strategy John Hardy takes a closer look at trends and moves in today’s forex charts, including EURUSD, USDJPY, AUDUSD, and EURSEK.
Article / 02 January 2018 at 15:43 GMT

House View: All eyes on pallid USD as trading year kicks off

Your Next Trade
USD stumbles into New Year; macro traders looking at US fiscal outlook?
  • It is still tough to judge the quality of the recent USD weakening move as much of it occurred in thin market conditions into year-end. 
  • US treasury market should offer clues on USD as 2018 gets under way; would expect much higher long US yields if weak USD is about fiscal worries. 
  • JPY nearly as weak as the USD as BoJ kept foot on monetary accelerator at December BoJ meeting. EURJPY hit new cycle high. 
  • In AUD some fairly obvious drivers of recent strength include the RBA rate outlook shifting higher, strong commodity prices, and a pick-up in China December PMIs. 
  • Key data into the end of the week: Friday sees Eurozone Flash December CPI, US payrolls/average hourly earnings 
  • NOK and SEK: big question for the two Scandies on whether new calendar year, return of liquidity finally bring some relief. 
  • ZAR: plenty of drama as ANC elects its new leadership and decides South Africa's future direction. A Ramaphosa win could drive further ZAR strength. 

Tech levels on watch for developments

  • EURSEK and EURNOK look pivotal for whether downside engages, particularly EURSEK in 9.80-85 zone. 
  • AUDUSD sees the last major Fibo level just ahead of 0.7900. USDCAD similar level at 1.2390.
  • EURUSD nominal high for the cycle was 1.2092 in September; next level above perhaps 1.2300-plus.
Trade themes
  • Short USDJPY as strong Japan economy/current account divergence argues for more JPY strength relative to USD.
  • EURUSD longs to hang on for new highs. 

Goldilocks environment to come to an end

  • Short-term negative on US equities despite tax reform and weaker USD. 
  • Positive on emerging market equities as segment is making new highs on China and the weaker USD. 
  • Positive on UK equities driven by strong momentum in the mining sector. 
  • Short-term negative on European equities as stronger EUR is hurting cyclical industries. 
  • Reiterate short-term bullish view on Hong Kong equities as momentum cannot be ignored and valuation is still low. 
  • Remain bullish on Japanese equities due to strong profit growth although recent momentum has faded. 
  • Slight overweight cyclical sectors but investors should consider increase defensive exposure in case of a correction. 
  • Our top three most preferred industries: software, semiconductors, technology hardware. 
  • Our top three least preferred industries: energy, telecommunication, media. 
Themes/trade ideas 
  • Momentum continues to be strong on US tax reform / China, but we expect PMIs to soon disappoint. 
  • Euro area economic activity rises to its highest level since April 2006. 
  • China continues to be mixed on macro although financial markets have strong sentiment. 
  • Realised inflation is a key indicator to watch in Q1 as it will set direction. 
  • Cross-asset class implied volatility is touching new lows.
  • Core bond yields are on the rise on the year's first trading day, sparking speculation and focus on inflationary pressure.
  • Italian yields are continuing higher, now closing in at 2.05% in 10-years. 
  • A continued hawkish European Central Bank will be hard to see with a continued stronger EUR.
High Yield
  • The selloff in US HY corporates last month didn't change much in this space as the US HY corporate spread remains at its lowest since 2014 and close to multi-year lows. This implies junk bonds are the most expensive ever.
  •  Astaldi may increase capital structure of €200million.
Investment Grade
  • Total volume in IG primary is expected to decelerate as we approach year-end. This week we will see Germany coming up with two-year, Spain with 3/10/15-year, and the US with 3/10/30-year issuances. 
Emerging Markets
  • The weaker dollar is expected to help investor inflow into EM asset classes, including bonds. 
Supply worries keeping oil supported... for now

  • Oil is in need of continued supply disruptions to maintain current momentum. 
  • A record long and a pickup in US shale production are currently the biggest risks to bullish sentiment.
  • A balanced supply and demand outlook leaves no room for Opec and Russia to increase production.
  • Focus: the current protests in Iran, weekly US stock and production data.
  • Gold is breaking higher on a weaker dollar and a subdued outlook for US real rates.
  • Political and economic news out of Washington continues to provide a key source of support.
  • Synchronised global growth and China's pollution fight supporting industrial metals but Chinese growth concerns into 2018 risk capping the market. 

  • Bloomberg Grains Index trading at a record low on ample global supply.
  • Speculators holding a record net-short across the three key crops.
  • Focus on monthly WASDE reports and potential impact of freezing US weather.
03 January
Dance like nobody's watching Dance like nobody's watching
This comment has been redacted
03 January
Dance like nobody's watching Dance like nobody's watching
US500 = 2700 broken


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