STO Fundemental - Yen boosted by safe haven status

We have a relatively quiet day ahead in terms of economic data, but aside from the scheduled announcements there remains a lot of focus on the new US President and what he’s going to do next. That promised overhaul of tax policy has the potential to hold some real direction for the markets, but given the hype this has already attracted, it could be a classic case of buy the rumour, sell the fact.


The Traders’ View


We’re seeing some notable buying of the New Zealand dollar against a number of pairs in early trade as the TopTradr prop desk starts lining up positions ahead of this evening’s data release. We’re also seeing pessimism in terms of equity indices with shorts on the S&P 500 the stand out here.

Yen boosted by safe-haven status


USD/JPY traded lower overnight, with weakness in Japanese equities being seen as at least partly responsible for the slide. We have seen the 114 handle regained in recent trade, but there’s an awful lot of news still to come for the pair and until we see that, the temptation for many traders is going to be de-risking and sitting on the sidelines. Those significant tax overhaul plans that have been promised by Donald Trump have the potential to drive all dollar crosses, but the exact timing of this – or indeed any other presidential intervention - remains the big unknown.

At 12.30pm the ECB publishes its account of the last monetary policy meeting and we can expect this to be under a degree of scrutiny given the divergent opinions that are being seen across the Eurozone as to just how much longer the lax approach can be maintained for. One sticking point here will be the impact of rising inflation – Mario Draghi’s wariness over just how sustainable the recent uplift may be has been well reported and anything that serves to discount this could leave the common currency under some renewed pressure.

We have a number of US construction metrics from January due for release at 1.30pm GMT and again these will help offer some insight as to the health of the economy in general. Any shortfall here could again be seen as a sign of uncertainty amongst developers in the wake of the new administration and although these promised tax breaks may hold some potential, any weakness here could be reflected badly especially on a pair like GBP/USD which is already looking a little beaten down.

9.45pm GMT this evening sees the release of retail sales data from New Zealand, which will be under scrutiny especially given the way the central bank last week played down the prospect of rate hikes. This went against what had been the emerging market sentiment, so any rapid expansion here will again raise the question as to just how long can the RBNZ maintain its current policy. Anything that calls into question whether rates can be held until 2019 as proposed will be positive for the Kiwi dollar.

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

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