Article / 16 June 2011 at 19:57 GMT

Huge G-10 FX Charts

John J Hardy John J Hardy
Head of FX Strategy / Saxo Bank
Today we again present a very wide angle view of each of the G-10 currencies versus an evenly weighted basket of the remainder of each currency's G-10 peers.
Every chart is indexed to 100 on a rolling basis some 10,000 trading days before the present, which works out to about nine and a half years, of which the last nine or so is presented on each chart.
The USD is trying to make a follow-up rally after the first rally from record lows against the rest of the G-10. The timing is interesting here with the approach of the end of QE2 in two weeks’ time. The upside has been disappointingly small relative to the downside in risk appetite, a circumstance that normally equates with a thriving US currency.
The Euro is suffering again after it peaked out in April on ECB expectations that have now been mostly wiped away as the conern shifts to the sovereign debt situations and its risks to the entire EU banking sector.
The JPY has been rangebound forever, but has been generally firmer of late on the unwind in carry trades in the face of falling bond yields around the world and the sharp contraction in risk appetite.
Sterling has been moping around in the cellar, but is trying to get something started here as the currency is somewhat correlated with the USD in some of the  crosses due to the similarities of the countries’ fiscal woes and monetary policies. The momentum of the sell-off has been waning and waning – but will the currency ever rally?
The franc has seen un unprecedented rally on the combination of its safe haven status from EuroZone woes and as its low interest rate becomes less of an issue with bond yields collapsing around the world. Note how every surge has been followed by a sharp consolidation and that the recent surge has been the currency’s largest. The situation may be coming unstable and CHF crosses are likely to remain volatile.
The Aussie finally consolidated a bit recently, though it is confused about what to do as precious metals are firm and copper hasn’t sold off much either, while the Australian economy is showing signs of strain and the broader risk appetite picture looks rather harrowing. Dare we call the recent record high the definitive top for now?
The loonie has been relatively weak due to its exposure to its big neighbor to the south. If crude oil and equities continue south, the currency is likely to do so as well, though its correlation to the USD could be its strength relative to the weaker corners of the market if the USD remains firm here.
The kiwi rally is extremely ambitious and may have to do with Chinese capital flows and rebuilding funds from the earthquakes, as the currency is certainly performing better than its normal correlation with risk appetite suggests it should be.
The krona has taken a huge hit here of late and remains one of the currencies most consistently correlated with risk appetite. Signs of rate expectations heading south and its pro-cyclical nature could see it challenged further in the weeks to come.
NOK isn’t sure what to do – on the one hand it is easy to argue that the NOK is a petro-currency, while on the other, the currency looks attractive from the sovereign credibility angle – so perhaps the currency stays in a range here as it is pulled in both directions simultaneously?


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