Risk-off Trade see Yen Charge Ahead

Our prop desk has seen those short S&P500 trades come back on side, whilst the long USDCHF positions from last week also remain in play. Long exposure to gold is also proving profitable.

Daily round up

A risk off mindset is gripping the market right now, with a mix of geopolitical and economic uncertainty in play. This situation isn’t expected to improve before the weekend break either, although once the US payroll data is released on Friday then the mood may become a little more relaxed. Oil is also worth watching as US front month contracts continue to plot a course back to $50/barrel – the support here is looking short lived.

Fundamental Analysis – risk-off trade see Yen charge ahead


Some misses in the economic readings yesterday, that explosion in St Petersburg and fears over what the back end of the week may hold with events ranging from Donald Trump’s meeting with the Chinese president through to US non-farm payrolls has left traders scratching around for safe havens in recent trade – and it’s the Yen that has been a notable winner. USD/JPY is pushing back towards last week’s lows around the 110 level, although with little economic data due from Japan in the near term, breaking below that psychological barrier may prove difficult.

Another beneficiary of the risk-off trade has been the traditional safe haven of gold, with the precious metal pushing back towards the year to date highs. This also plays towards the idea that gains for the US dollar may be close to having run their course, with falling Treasury yields adding further support to that argument. US factory order data could provide some fresh direction here when we see that released at 2pm GMT – expectations are for a modest decline but anything that comes in below the forecast 0.9% could well pave the way for further greenback weakness.

Mario Draghi speaks at the ECB at 1.30pm GMT this afternoon and in light of last week’s falling Eurozone inflation reading, expect his words to be closely followed. The idea of policy tightening from the ECB has been pushed onto the back foot since the middle of last week, with EUR/USD around 250 points lower as a result. There’s certainly scope for something of a reversion to be seen in the near term, if a more hawkish tone can be detected.

The Aussie dollar took another leg lower overnight after comments from RBA Governor Philip Lowe were taken as talking up weakness for the currency. There was certainly no surprise in terms of interest rates being left at their record low of 1.5%, but the explicit statement that a stronger currency would complicate the nation’s economic adjustment has sent a pointed message to the market. Quite how this will be received in Washington remains to be seen, but it should certainly do its bit to keep inflation ticking over. Again, an absence of data from Australia could also serve to limit the potential for any snap back here.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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