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 / 11 January 2018 at 9:05 GMT

FX Update: China cries 'fake news' on Treasuries story — #SaxoStrats

Head of FX Strategy / Saxo Bank
  • US Treasury rout turns around on Chinese disavowal
  • Dollar gains ground on consequent yields drop
  • Loonie drops on Canadian officials' NAFTA pessimism

Beijing has disavowed Wednesday's Bloomberg report claiming a lack of appetite for US debt, and US yields are falling lower on the news. Photo: Shutterstock

By John J Hardy

China borrowed a page from Trump's book in crying “fake news” on yesterday’s Bloomberg story concerning a purported official lack of Chinese appetite for adding to US Treasury debt. It is hard to believe that Bloomberg would risk its reputation on such a story without having a good source, so it is hard to know whether to believe the story or the denial... or both, or neither. 

In any case, the US Treasury rout was reversed and the USD found quick support in most pairs as longer-dated US Treasuries were picked back up and yields dropped, though the reversal has not yet taken the 10-year benchmark back below 2.50% – the key psychological and actual recent breakout level. 

This is the pivotal level if the narrative of rising yields is to maintain a head of steam. 

USDJPY backed up fairly close to the somewhat pivotal 112.00 this morning on the relief in US Treasuries and as the Bank of Japan made its normal allotment to shorter-dated bond purchases out to 10 years (recall that the original spark for the recent USDJPY selloff was the reduced allocation to longer-dated bond purchases beyond 10 years). 

All of the noise and volatility points to a rather important January 23 BoJ meeting. Despite the BoJ’s supposed maintaining of its present course, the bank's actions, particularly the de facto tapering already in the bag in 2017, speak louder than words.

CAD and AUD saw diverging fortunes overnight as CAD was blasted for steep losses on a Reuters exclusive citing Canadian government officials who believe Trump will eventually pull the US out of NAFTA . AUD, meanwhile, was boosted on a massive Retail Sales report in December, apparently driven especially by iPhone X sales. 

The reaction has faded somewhat this morning, because if the driver is a one-off boost from iPhones, it offers little informational value on the economy or the Reserve Bank of Australia’s future policy moves.


The test is here: AUDUSD touched the key 61.8% Fibonacci level almost to the pip overnight despite a general recovery in the USD on the strong Australian Retail Sales news. We should have a better read on the next leg for the pair in the wake of tomorrow’s pivotal US CPI release.


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Source: Saxo Bank

Today's European Central Bank minutes are unlikely to offer any scraps to feed volatility, but there may be a sense fof growing discomfort with having established dovish guidance so far forward and the risks skew slightly to the hawkish side.

The G-10 rundown

USD – the greenback returns to square one after the Chinese treasury story – it is rather different to view US yields as driven by a shortfall in foreign financing of deficits rather than due to a strong economy so the driver of higher yields (if they continue to rise) is critical. Tomorrow’s US CPI release looks important, coming as it does after the recent break higher in long yields.

EUR – ECB minutes unlikely to offer drama, but likely to see some discomfort on current policy guidance, which is nominally hawkish. An Italian bond auction this morning will be an interesting distraction for whether peripheral spreads are a story now the ECB has reduced its pace of purchases.

JPY – The JPY remaining firm in the crosses (note the big reversals in EURJPY and GBPJPY) as the US Treasury story linked to China was not the original reason for the JPY rally.

GBP – sterling suffering at the hands of the greenback and GBPUSD at risk of a capitulation lower if we work below 1.3450.

CHF – USDCHF looks an interesting way to express further USD strength if long yields pull back higher post US CPI tomorrow, especially if the pivotal 0.9850 area is taken out.

AUD – hard to believe in broad AUD strength persisting merely on this Retail Sales story – need a weaker USD and a further boost from elsewhere to get AUDUSD through that pivotal Fibo discussed above.

CAD – the loonie blasted by the Reuters story suggesting the risk of the end of NAFTA. Bank of Canada expectations also came under pressure as this could temper its aggressiveness in continuing to hike rates.

NZD – fairly neutral action in the kiwi but we are approaching the final resistance zone in NZDUSD (so similar to USDCAD and AUDUSD technically) into 0.7250.

SEK – a pivotal end of the week ahead for SEK as EURSEK has dropped below that key 9.80-85 zone, but needs a reasonably stiff Swedish CPI data point tomorrow to seal the deal and potentially open the range back up toward 9.50.

NOK – $70/barrel oil should mean EURNOK back toward 9.25 or lower, but let’s see... the 9.60-50 zone is key for establishing whether this secular rally is done.

Upcoming Economic Calendar Highlights (all times GMT)

  • 0830 – Sweden Dec. Average house Prices 
  • 1000 – Eurozone Nov. Industrial Production 
  • 1100 – Poland Dec. CPI 
  • 1230 – ECB Meeting Minutes 
  • 1330 – Canada Nov. New Housing Price 
  • 1330 – US Dec. PPI 
  • 1330 – US Weekly Initial Jobless Claims 
  • 2030 – US Fed’s Dudley to Speak 
  • 2145 – New Zealand Building Permits 

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank


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