Baku, Azerbaijan, April 5
By Anvar Mammadov - Trend:
Yesterday was a textbook example of the effect of headline risks on the intraday trading action, head of Foreign Exchange Strategy at Saxo Bank John Hardy told Trend on April 5.
He said that first China announced a bevy of possible tariffs on $50 billion of US goods and sent risk appetite into a tailspin.
"Currencies politely reacted with a muted response, with the JPY backing up slightly and other risk correlated currencies doing likewise with even lower amplitude. But then a quick response later in the day from Trump administration officials, including new economic adviser Larry Kudlow, suggested that the measures previously announced from the US side are merely proposals that are “out for comment”," he said.
"China’s ambassador to the US even made friendly noises as well, saying that negotiations on trade would be the preferred approach, but “it takes two to tango”. All in all, we’re back to square one with the market now having the distinct impression that a trade confrontation will only go so far before the Trump administration backs down if their tactics risk a meltdown in stocks."
Hardy stressed that yesterday’s moves continue to point to a weak EUR, CHF and JPY here, a development that looks very likely to extend if equities continue to rally from the newfound support and if yields pull back higher, which they have been quick to do in the wake of this episode.
"Incoming economic data will take on renewed focus on that account, starting with tomorrow’s US jobs report in particular. Nothing seems amiss on the US data front as the ISM non-manufacturing on missed very slightly at a still very high 58.8 level and the ADP payrolls and very low weekly jobless claims data of late point to ongoing strength in the job market," he said.
He stressed that USD/CHF is poking up toward its 200-day moving average near 0.9650 and deserves focus as possibly the next USD pair after AUDUSD and USDCAD to have a look at this major technical milestone.
"We have recently noted the turnaround in USDJPY and the next layer of resistance into 107.00-50 looks pivotal for whether we challenge the validity of the entire downtrend," according to him.