Global currency market stabilizes after strong shock - expert

Baku, Azerbaijan, March 27

By Anvar Mammadov - Trend:

Markets opened the week in a blast of good cheer as the latest developments in the trade war showdown between the US and China suggest room for hope, with both sides expressing interest in working through differences, Head of FX Strategy at Saxo Bank John Hardy told Trend.

“This came a mere couple of days after the ugly close to trading last week, with the global risk benchmark, the S&P 500, closing the week perilously perched on its 200-day moving average,” he said. “This is a classic case of a market driven by headline risk and makes for a treacherous trading environment. With the surge in risk appetite and perhaps telling absence of a more forceful repricing of US bond yields higher, the US dollar suffered and the Japanese yen suffered even more so, serving as it has lately as the highest beta currency to risk appetite. EURUSD pulled sharply higher to its highest closing level in weeks and look set to challenge the highs for the cycle.”

“EURUSD saw its strongest close in weeks, well above 1.2400, and bulls should take heart that this signals a new challenge of the highs for the cycle and possibly more – with many noting the very long term trend-line in play from the 2008 top,” he noted. “1.3000 has been a pivotal level for the pair in the past and could attract if 1.2500 is finally broken.”

Many EM currencies showed immunity to the general risk contagion going into last week’s ugly closing levels, and this week has seen varied developments, he added.

“The blast stronger in China’s renminbi to start the week has been the most notable development, and has dragged much of Asian EM stronger with it,” he said. “Also enjoying strength are the South African rand on recent supportive headlines and political developments and now the Mexican peso, with USDMXN now more forcefully below the 200-day moving average yesterday on the general sense of relief on the trade war theme.”

“A bit weaker relative to the supportive backdrop are the Russian ruble after so many nations have moved to show solidarity with the UK in giving Russia a diplomatic cold shoulder,” he said.

The Turkish lira is being given the widest berth among major EM’s at the moment, against the backdrop of anti-terrorist operations in Syria, supported by the US, as well as the aspirations of the Turkish government to ensure economic growth at any cost, he added.

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