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The European trading session opens today with the euro bashed lower by fresh fears that the proposed Grand Coalition in Germany won't happen; the Mexican peso ahead on hope of a "softer" Trump approach to NAFTA; buoyant equity performance in Asia and an emerging likelihood that the commodity metals and energy rally will run out of steam.
Article / 12 December 2017 at 13:59 GMT

FX Board: Currencies in stasis ahead of central bank cavalcade

Head of FX Strategy / Saxo Bank
Denmark
  • Swedish CPI beat places EURSEK bears on the attack
  • Australian dollar squeezes higher against basket of peers
  • FOMC meeting may drive FX action even if hike priced in

Federal Reserve
The G10 currencies are playing a waiting game ahead of this week's 
central bank bonanza. Photo: Shutterstock 

By John J Hardy

Please see today's FX Board PDF attached to this post for the latest Notes of Interest, Trend and Trend Heat readings, as well as a few thoughts on key chart developments below.

In general, market action was subdued today as we are awaiting a number of central bank meetings starting with tomorrow's Federal Open Market Committee meeting, which will effectively mark the end of the Bernanke-Yellen era.

Today's action was most concentrated in SEK where an upside CPI surprise has seen EURSEK bears attempting to decisively take the price action lower, though they are not yet succeeding in any major sense (and given the highly anticipated Riksbank meeting up next week). 

As well, the Aussie was out to create some mischief in today's session by squeezing higher nearly across the board with little to nothing in the way of news to drive the move.

Charts: EURSEK

EURSEK sold off hard on the much higher than expected November CPI release from Sweden today (1.9% headline and 2.0% core versus 1.7% and 1.8% expected), leading some to suspect that the Riksbank may wax less dovish at next Wednesday's meeting. 

A close today below 9.90 would offer a reasonable bearish technical reversal, but regardless, the key event risk is clearly the Riksbank's guidance next week.

eursek

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Source: Saxo Bank 

AUDUSD

Today saw AUDUSD squeeze to uncomfortable levels just shy of the 0.7600-plus area which would begin to suggest a tactical bullish reversal. It is hard to judge the quality of the move until we get to the other side of tomorrow's US CPI release and the subsequent FOMC meeting, which should drive a bit more volatility in USD pairs (even if the rate hike is priced fully). 

It is also worrisome for bears that we see some bullish divergent momentum, but again, tomorrow's action will be the deciding factor. If we do get a consolidation back higher, it could extend to 0.7750-0.7800 and even a bit higher before fading again.  

audusd
Source: Saxo Bank  

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank

Download document

FX Board for Tuesday, December 12, 2017

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