STATE OF THE MARKETS

Global jitters drove safe haven flows. Major world equity indices closed sharply lower on Wednesday as investors’ concerns on extended valuation triggered massive profit taking in the equities markets. Prompted by Feds concerns on slower economic recovery, the US indices dropped more than 2% while the European indices more than 1% on profit taking. Investors flocked to the safe-haven bonds with US 10Y yield remains pressured, though above the 100 basis points threshold.

Crude remain on offers, relatively unchanged at $52.40/bl, though US crude supplies showed more than 5 million barrel were reduced last week. Investors still see concerns on future demand as new covid cases resurgence plagued China and Europe. Gold slid lower, closed below $1850/oz, as investors preferred the interest bearing Dollar over the anti-inflationary asset hedge.

Safe haven flows benefitted the Dollar as fear hit the markets, sending the comdolls to the back burner in the short and medium term accounts. Sterling took the helm of long term demand from Aussie and Kiwi, while the Swiss edged lower to support the Greenback. It seemed that investors are more cautious and took a pre-emptive measure towards the month end portfolio rebalancing.

OUR PICK – EUR/JPY

Euro remains supported in the short and medium term. Order flows points to Euro support around the 1.2100 US Dollar and believe the best way of play is through the Yen quote for the best risk reward. Support in the long term has deteriorated as Europe went back on lockdown and political drama that is unveiling in Italy. Nevertheless, the one union currency remain supported by the Yen in a risk-off markets. Technical look promising with trend line support above the 125.80 and pivot around the 126.25 Yen. We prefer buy on dip around the 125.85/126.00 to achieve best risk reward ratio.