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 / 25 November 2016 at 9:04 GMT

FX Update: Consolidation time? Not necessarily. – #SaxoStrats

Head of FX Strategy / Saxo Bank
  • Japan's CPI slightly high but data skewed by strong October JPY 
  • USD rally from late Wednesday was concentrated in USDJPY
  • Other USD pairs have consolidated or headed sideways

By John J Hardy

The CPI data out of Japan overnight was a nudge higher than expected on a nationwide basis but October isn’t a particularly compelling month to look at these numbers as the JPY sat atop its former rally stance and broad strength for most of that month. On that note, the headline Tokyo CPI figure saw a jump to a +0.5% year-on-year rate and we can expect higher national numbers for November as well after the steep devaluation in the JPY this month. This currency effect will allow the Bank of Japan to claim a measure of success, but most of that success has been provided by the brutal selloff in US treasuries that triggered the market’s reassessment of former JPY strength. 

The USD rally from late Wednesday was almost entirely concentrated in USDJPY as other USD pairs have consolidated or headed sideways over the last couple of sessions. AUDUSD, for example, is pushing on its local resistance again and remains far off the lows as Australian mining stocks are on fire on the recent speculative run in commodities in China. BHP Billiton’s share price has nearly doubled from its lows at the beginning of this year. We still prefer AUD downside versus the greenback, but as long as this mining recovery narrative remains in place, it’s a tough sell.


USDJPY leaped higher Wednesday, and extended yesterday and overnight despite the US holiday – finally showing signs of flagging a bit this morning. It may finally be time for a breather in this bull market, though due to the strength of the rally, there may be considerable two way traffic during any consolidation move, as new entrants seek to get involved. 

Next week’s US data could be the key for a market that is looking for support or rejection for recent moves (not because the data itself carries a lot of weight). It’s notable that the last leg of USDJPY upside has far more about JPY weakness rather than USD strength, so it'll be interesting to see if we can get a correction here without broader USD implications elsewhere. Note that the weekly Ichimoku cloud level comes in the low 112.00s (horizontal line drawn on the chart.) – this could be an important level on this week's closing basis.
 Source: SaxoTraderGO

The G-10 rundown

USD – is it time for the USD strength to broaden out more? Watching for this development, particularly if markets start to fret the effects of higher interest rates on riskier assets – but so far, no real signs of this, but have a hard time imagining the likes of AUDUSD can turn the tide against the rising greenback.

EUR – Italy to Germany 10-year spread well over 180 basis points is a red flag as we barrel towards the Italian referendum on December 4. Would expect any consolidation in EURUSD to be quite shallow as the focus is firmly toward parity and beyond as long as US rates remain here or head higher.

JPY – some risk of consolidation in the recent selloff if bond yields go sideways or lower for a spell (especially if US data next week proves notably weaker than expected).

GBP – sterling strength easing a bit during the USD consolidation – could be a pattern there, with directional sympathy in EURGBP and EURUSD. UK GDP revision today, but not looking for meaning in the UK data until early next year, as the sterling collapse may have brought forward considerable demand.

CHF – the Swiss National Bank’s Fritz Zurbruegg was out talking up SNB intervention policy and the efficacy of negative rates to keep the franc weaker – EURCHF pushing on upper bound of recent range at 1.0750 this morning. We still like the USDCHF higher story as long as US rates remain high and higher.

AUD – the Aussie sticks out in this market as it was able to mount the most significant consolidation against a strong greenback over the last couple of session. A return to weakness will likely require an end to the Chinese commodities “boom” or “bubble” or however we’re supposed to characterise it.

CAD – we like CAD versus AUD and NZD, but little to excite traders technically in USDCAD save for the recent survival of the 1.3400 area support.

NZD – we’re getting some polite consolidation off the key 0.7000/0.6950 area here in NZDUSD, but bears may want to fade the upticks as long as the pair remains south of 0.7100/50.

SEK – GDP is up next week, the first interesting data point in some time from Sweden – data has been relatively positive, but the household lending data began slowing earlier this year and is the key indicator for Sweden’s overleveraged economy (7.5% growth in credit to keep GDP running at 3% = not sustainable).

NOK – losing interest in NOK as nothing sticks out here theme-wise. The Italian referendum could have some bearing on EURNOK.

Upcoming Economic Calendar Highlights (all times GMT)

  • 0930 – UK Q3 GDP estimate 
  • 1445 – US Nov. Preliminary Markit Services PMI 

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank

brian1983 brian1983
ya. tat why i short dollar index instead of usdjpy. i think usd may correct next wk due to italian refrendum on dec 4th. not sure if that will lead to any safe haven flow of yen n gold.


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