Kay Van-Petersen
Saxo's global macro strategist Kay Van-Petersen examines the big issues for the markets in the week ahead in this brief rundown.
Article / 01 September 2016 at 7:29 GMT

FX Update: Dollar ready to turn on a dime

Head of FX Strategy / Saxo Bank
  • Boston Fed chief talks up financial stability risks
  • G20 meeting may be keeping renminbi contained
  • Break lower in EURUSD could place 1.05 in view

Boston, Massachusetts
Bearish in Boston? Regional Fed chief Eric Rosengren was out yesterday talking up risks to financial stability even as markets broadly prepare for a rate hike. Photo: iStock 

By John J Hardy

Boston Federal Reserve president Eric Rosengren (a Federal Open Market Committee voter through the December meeting) was out hemming and hawing on Fed policy, and generally raising the profile of risks to financial stability from not hiking rates, particularly in commercial real estate. 

This cam even as he argued that hiking too quickly would not be productive. His comments were thoroughly ignored by the market, but I suspect the Fed has financial stability issues on its radar to a greater degree than the market suspects. 

Regardless, all of the latest Fed rhetoric and Yellen’s Jackson Hole speech notwithstanding, the odds of a September hike are hardly any higher than they were a week ago, and the December 2017 Fed rate expectations have only shifted about 10 basis points higher over the last two to three weeks. 

It would seem that significant data surprises are the only thing that will do the trick for moving a sceptical market into believing in more than one rate hike in the next 15 months.  

Today, we swing the focus to global manufacturing PMI day, where the stakes are perhaps highest for the UK (as sterling has poked to local new highs in places) and for the US as the ISM manufacturing print has high odds of missing expectations if the regional manufacturing surveys mean anything.

We have a G20 meeting up this weekend in China. The meeting is likely keeping the CNY weakness contained for now, but we would be surprised to see China allow its currency to move sharply until at least after the US presidential election, if it ever allows it to move sharply. 

Also interesting that China’s regime allowed the shipping firm Hanjin to go bankrupt...
EURUSD (weekly)

The market has picked up on the 200-day (40-week below) moving average near 1.1125 a near-term support as we await tomorrow’s US jobs figures. Zooming out to the weekly chart shows us how pivotal the entire zone down toward 1.1000, which serves as a psychological level and somewhat of a head and shoulders neckline as well, truly is. 

The suspicion is that we either stay bottled up in this higher range or break lower and swiftly plunge to the 1.0500 area again.


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Source: Saxo Bank 

The G-10 rundown

USD – If the regional manufacturing surveys have any bearing on the ISM manufacturing, which they should, we risk a fairly weak survey today – virtually all of the regional surveys saw significant softness this month and the flash Markit Manufacturing PMI number dipped to 50.9 as well. The question is whether the market is willing to react significantly to this data point ahead of tomorrow’s more important nonfarm payrolls release.

EUR – watching today’s update of Eurozone manufacturing PMIs and the technicals of the EURUSD chart through tomorrow’s US jobs data, as the pair just touched the 200-day MA.

JPY – JPY positioning and interest in either buying protection or speculating that the Bank of Japan will succeed in impressing the market at the September 21 meeting is seeing new local highs in USDJPY – the next key zone here is towards 104.50/105.00.

GBP – a modest sterling squeeze set in yesterday, was reversed later in the day, and then resumed once again, with EURGBP looking at new local lows ahead of the UK Aug. Manufacturing PMI, which will likely will set the tone through the end of the week.

CHF – EURCHF continues to make mischief at the top of the range – is the theme here the punishment of negative-yielders? Fits with the relative weakness in SEK and JPY as well...

AUD – AUD bouncing overnight on the slightly firmer official Chinese PMI survey data – hard to fathom market bothers reacting to these numbers. Australia’s own AiG manufacturing survey collapsed to 46.9 from 56.4, but this survey is usually ignored by the market.

CAD – the steep slide in oil prices yesterday taking USDCAD above 1.3100, but the key test for the pair is up at 1.3250-plus.

NZD – AUDNZD has seen another run lower yesterday and is not far from the 2016 lows in the low 1.0300’s, below which parity looms. Widespread risk off and/or the end of the chase for yield theme are likely required to counter the unsustainable rally in the kiwi if the Reserve Bank of new Zealand doesn’t step in and put up a bigger fight.

SEK – the market seems to have taken a version to negative yielding currencies as EURSEK is running out of room as the top of the very persistent range looms in the 9.60+ area, with levels above there only having been achieved on brief spikes.

NOK – plunge in oil prices weighing against NOK, though the 9.30/35 resistance in EURNOK so far hanging in there or now. The Aug. unemployment rate is up tomorrow after today’s manufacturing PMI and Retail Sales data.

Economic Calendar Highlights (all times GMT)

  • 0715 – 0800 – Euro Zone Aug. Final Manufacturing PMI 
  • 0830 – UK Aug. Markit Manufacturing PMI  
  • 1230 – US Weekly Initial Jobless Claims 
  • 1230 – US Q2 Final Nonfarm Productivity and Unit Labor Costs 
  • 1330 – Canada Aug. RBC Manufacturing PMI 
  • 1400 – US Aug. ISM Manufacturing 

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank


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