Russia – Ukraine
Are we back in 2021?
You’d be forgiven for thinking you had woken up in early 2021 when looking at some US stocks this morning. AMC up 50%, GameStop up 25% and Bed Bath and Beyond up 17%. Meme stocks seem to be en vogue once again but we will try not to let that distract us too much from what is going on elsewhere.
Risk was led by crypto markets yesterday. Over the past week it hasn’t actually been the majors leading the way but in fact ADA which is up 30% over the week. BTC still holds on to a $47k handle whilst ETH has pushed above $3400 albeit briefly. It does feel like this round of buying in crypto is non-leveraged and signals long term demand. It is tough for us to call for a straight line move higher in crypto with a war going on in Europe but we are respecting price action. We continue to stay long of crypto and expect BTC and ETH to find support around $45.5k and $3250 respectively. Worth noting that Terra shows no signs of slowing down and now has breached the psychological $100 resistance level. Whilst we aren’t quite there yet, the signs are positive that crypto markets may be waking up out of their sideways slumber.
Equities finally caught up with crypto late afternoon and grinded higher but haven’t exactly run away. In FX, we highlighted USD/JPY being the key instrument to benefit from the improved risk sentiment and higher yields and boy did it move yesterday, A more than 2% move higher on the day saw the pair breach 125.00. The oe to 125.00 did feel like the last leg of capitulation for Yen longs and we did have quite a deep pull back toward 123.30. Such a move usually marks the high (or low) in place but with USD/JPY it will ultimately be yields that decide if that is the case. If yields top out here we may have seen the high in USD/JPY for a while.
The greenback remained bid yesterday, sending cable south of 1.3100 and EUR south of 1.1000. However the USD index was unable to get back above its recent highs of 99.40. If we are to see a move back above 100, we will need to see yields kick on another leg higher. The question everyone is asking themselves is, ‘just how much further can yields go?’ We remain light in FX positioning with buying USD dips seeming like the way for now. Today is value date month end which may result in some USD buying…famous last words.
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This update: 14 Oct 2020
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