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From the Floor: EUR suffers, MXN buoyant, commodities on edge

#SaxoStrats
  • Euro hurt by partial rejection of German coalition
  • Just a small fraction of SPD members voted No, but others may follow
  • Overall SPD vote on Grand Coalition will take place on Sunday
  • Mexican peso doing well on hopes Trump will soften his NAFTA stance
  • Hang Seng futures up 1.6% and Nikkei futures 1% ahead
  • Commodity metals & energy rally may pause as investors take stock
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By Clare MacCarthy

The European trading session opens today with the euro bashed lower by fresh fears that the proposed Grand Coalition in Germany won't happen; the Mexican peso ahead on hope of a "softer" Trump approach to NAFTA; buoyant equity performance in Asia and an emerging likelihood that the commodity metals and energy rally will run out of steam.

First to forex markets where John J Hardy, Saxo's head of FX strategy reports that a small local chapter of Germany's SPD social democratic has voted against the proposed grand coalition with Angela Merkel's CDU, a tentative proposal that followed months of tortuous negotiations. "This is only a small fraction of the SPD vote but it's enough to cause a wobble in the euro because of the current speculative positioning," Hardy says, adding "It's sowing some doubt and could hold the euro back all this week should other similar votes take place." But that said, it's important to point out that we won't know the final outcome – and whether or not new German elections will become necessary – until the all-party vote on Sunday.

Elsewhere in the FX space, the Mexican peso is riding high on indications that US president Donald Trump may soften his hard-line approach to NAFTA, a development that would obviously be good for the peso on from a foreign trade perspective. But clouds loom further along the horizon with the country facing a general election alter this year and the possibility of a leftist victory that would usher business-unfriendly and peso-unfriendly policies.

Equity markets are on the quiet side this morning though Asian stocks did put on a strong show overnight, Peter Garnry, Saxo's head of equity strategy reports. " Hang Seng futures are up 1.6% and Nikkei futures are 1% ahead," he says.

meanwhile, commodity investors usually pause for a breather mid-way through January to take stock of the year's opening performance says Ole Hansen, Saxo's head of commodity strategy, and this fact means that the recent rally ion energy and metals may be put on hold too. "Gold may pause with profit taking likely to emerge ahead of a band of resistance between $1350 and $1357/oz while WTI crude oil trades in overbought territory  for a fifth day with the latest reading being close to a 4½-year high," Hansen reports.

Finally today, Kim Cramer Larsson, a Saxo technical analyst, gives us a run through of the most interesting inflection points and possible trend changes on a selection of FX and equity charts. Listen in to the attached recording for full details.

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Another election in Germany? Yes, should the SPD spike the Grand Coalition plan next Sunday.
Photo: Mattis Kaminer / Shutterstock.com
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