View from London: Watch Swiss Franc, Yen

07/10/2017 2:55 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

The best guide to risk is the Swiss franc and Japanese yen funding trades. EUR/CHF breaking 1.10 today merits attention, but so too the trading of JPY over 114, asserts Bob Savage, CEO of Track Research in recent commentary from London.

The natural evolution of international cooperation from the cold war G7 to the new world G20 and now back to the G19 as the US skips out on the Paris climate accord.

The bold new Merkel-led world is irrevocable but somehow less believable without the US. The arguments about US isolationism ring flat as the world appears to be headed more to G0 rather than G25.

But the risks that there is less international cooperation just doesn't surprise anyone and the false push to get a consensus at any cost seems less useful in the long run. Divergence comes with the new world of angry voters but no one seems to care.

The overnight news wasn't much more exciting-the Japan Machine Orders missed and are at odds with the upbeat EcoWatchers and Kuroda speech. The China PPI and CPI were unchanged and leave clear that nothing new is going on there-so look away-or so the voices of stability want us to believe.

The German and French data were in robust enough to keep ECB talking up rates and yet something shifted overnight in terms of bonds-as the world became less sure that momentum selling strategies matter as much the data ahead and the 2Q earnings.

The markets are in a Tic-Tack-Toe mood with the carry trades and relative value ideas returning to summer trading. There isn't a lot of new fear, there is plenty of cash sloshing around and the fear of positioning is lighter somehow-except in oil and commodities in general-where volatility still lives. Not the reversal in oil overnight and what it means to bonds up and stocks up and whether that is the entire reason we see the return to the "risk-parity" party.

The best guide to risk is the traditional Swiss franc (CHF) and Japanese yen (JPY) funding trades. EUR/CHF breaking 1.10 today merits attention, but so too the trading of JPY over 114. The summer is back on track for those that missed it in June and last week.

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