John J Hardy
Saxo Bank’s head of FX strategy John Hardy takes a closer look at trends and moves in today’s forex charts, including EURUSD, USDJPY, AUDUSD, and EURSEK.
Article / 03 May 2016 at 8:47 GMT

From the Floor: Mood cautious as major FX pairs gyrate

  • Aussie dented by surprise 25bps rate cut
  • US dollar index slides to a 15-month low
  • Yen hit a fresh 18-month high vs USD
  • European companies hit by revenue slide
  • Strong demand for Argentinian bonds 
By Clare MacCarthy

With Monday trading dampened by the UK bank holiday, FX markets in Europe this morning are starting on a sour note after the yen hit a new 18-month high, the Aussie dollar was shaken by a surprise rate cut and the US dollar index slid to a 15-month low. 

John Hardy, Saxo's head of FX strategy, says that while there was a large minority expecting a rate cut in Australia the general consensus was that policy would remain unchanged. But the 25 basis points cut was not alone in undermining the Aussie dollar, he explains: "The guidance was quite dovish with pretty clear concern expressed about inflation while the rhetoric around the jobs data was a little more negative than would have been expected." 

Furthermore, the Reserve Bank of Australia also pointed out that recent measures to prevent excessive leverage in the housing market should mean that lower rates shouldn't further aggravate rising housing prices. "This opens the door for more rate cuts in the future and the market was really the wrong way around as to RBA expectations – we've seen a decrease of over 30 basis points in the Australian 2-year rate so there's further weakness potential there," Hardy says.

More downside risk for AUD:
 Source: Bloomberg, Saxo Bank

Elsewhere, EURCHF is pressing to the upside on the back of an article by the Nouriel Roubini research group suggesting that the Swiss National Bank might seek authority to prevent cash hoarding by commercial banks to stop any further Swiss franc appreciation. "It's an interesting note and it might mean that the franc stays stable despite these sort of macro risks," Hardy says.
Finally, in the forex sphere today, with the US dollar still embattled the focus from here will be on Federal Reserve speakers and this week's crop of US data releases which includes ISM non-manufacturing index tomorrow and more importantly, Friday's April nonfarm payrolls.

Earnings stall

As equities season rolls onwards the data is accumulating and what it's now telling us, says Saxo's head of equity strategy, is that European corporate revenues are stalling. BMW has undershot its Q1 revenue forecasts big time, though it's still at a record level.

The theme of banking sector weakness remains in the headlines with the latest victim being UBS which reported a 4% decline in operating income income after market turbulence eroded earnings at its capital markets and wealth management units.

But one large bank has bucked the downwards trend: Paris-based BNP Parabis reported a 10% jump in net income though it too suffered a sharp decline in investment banking revenues. But this decline was more than balanced by lower bad loan provisions as well as a debt valuation adjustment.

BNP Paribas weekly share price since 2012:

 Source: Bloomberg, Saxo Bank

Finally today, the UK bank holiday meant that the European fixed income market saw little action yesterday, says Michael Boye of Saxo's fixed income trading desk. Across the Atlantic, though, with dollar weakness persisting, US treasuries have drifted lower and the 10-year benchmark yield is up at 1.85% ahead of Friday's crunch nonfarm payrolls data.

Further south in the Americas, demand for Argentinean bonds is reported to be strong while short-term Venezuelan bonds are rallying as a surge in the crude oil price has raised hopes that the country might meet its obligations.

 Source: Bloomberg, Saxo Bank

Clare MacCarthy is deputy editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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