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 / 21 March 2017 at 8:24 GMT

FX Update: EUR gains after Macron seen as debate victor — #SaxoStrats

Head of FX Strategy / Saxo Bank
  • French debate sees Macron take charge
  • EUR boosted by pro-EU candidate's performance
  • RBA frets housing market risks in statement

Emmanuel Macron
Pro-EU French presidential candidate Emmanuel Macron's strong showing in Monday's televised debate has boosted the euro. Photo: Shutterstock 

By John J Hardy

The French presidential election debate late yesterday saw a feisty Emmanuel Macron firming his credibility as the likely victor in the second round of the French presidential election in early May. 

Reaction in the FX market outpaced that in the bond market as the France-Germany 10-year yield spread shifted by a mere two to three basis points in early trading this morning. Given the apparently very high odds that Marine Le Pen won’t win the election, it is tough to tell how much anticipation is built into the result. 

Most of the options market skew for puts that was priced in for three-month volatilities in recent weeks has been priced back out. Back in late February, the skew was as high as three vols for puts relative to calls, and that has been wound back down to less than 1.5. 

While the technical situation for EURUSD looks compelling if we manage to see a break of the 1.0800-50 area, we have to wonder whether the longer-term thinkers might begin to fret over what the eventual European Central Bank taper and rate hikes that euro longs are theoretically celebrating will mean for peripheral debt spreads, especially for Italy and Portugal. 

Yes, the most dangerous thing in terms new EU existential risks might be a strong EU economy.

The Reserve Bank of Australia minutes out overnight saw no notable adjustment in rate expectations for the RBA, which continues to peddle a hopeful message on the economy, particularly linked to the recent strong rise in key commodity prices that boost hopes for Australia’s extraction industries. At the same time, the RBA frets risk from the housing market –as well it should, given the obvious signs of a bubble. 

Now that the RBA rate has bottomed for the cycle, the trajectory in prices is likely to flatten out or worse. Also note that more forward indicators on housing like building approvals have been in steep retreat in recent months. Australia faces very significant long term headwinds from credit and housing.

Today’s key focal point is the UK CPI up at 0930 GMT as anticipation around UK inflation releases has been escalated by the indication last week at Thursday's Bank of England meeting that an increasing number of Monetary Policy Committee members will be ready to hike rates if inflation continues to rise. 

The risks are two-way on this inflation release, as sterling has put in a respectable rally on the back of the shift in BoE guidance.


EURUSD has poked back higher once again as it stares down the pivotal 1.0800-50 area. The next critical risk event here may be the Thursday vote in the US House of Representatives on the Obamacare repeal bill, as this could be generally seen as a litmus test for “the Trump trade” and whether future policy initiatives that sparked the USD rally after the election will ever see the light of day.


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Source: Saxo Bank 

The G-10 rundown

USD – waiting for Thursday’s political developments for direction. Given how close we are to pivotal supports, the next move could surprise in magnitude.

EUR – the euro was boosted by the French debates, but we are wondering if the market is really ready to take EURUSD above resistance, at least until a bigger USD move is triggered by developments in the US. The longer-term question remains: what does the eventual end of QE mean for Italy and Portugal sovereign spreads and the old EU existential risk theme?

JPY – the yen is quiet here as EURJPY recovered sharply after a dip yesterday ahead of the French debate. JPY moves will key on moves in bond yields and the JPY could be very reactive to developments in the USD this Thursday.

GBP – sterling should prove highly sensitive to inflation surprises today, with 1.2400 the key for additional upside in GBPUSD and the 0.8650-0.8600 area to the downside in EURGBP and 0.8800-plus to the upside the key levels on a notable inflation surprise.

CHF – EURCHF is getting a minor boost from the French debates, but the general heaviness and ongoing builds in Swiss National Bank’s sight deposits suggest a longer term pressure on CHF to strengthen versus the single currency. Will CHF only revalue if the EU starts a notable effort to issue mutual bonds?

AUD – the Aussie was weak overnight. We have long-term concerns on the Australian economy, while recognizing the short-term supports for the currency from commodity price developments and the more neutral outlook from the RBA.

CAD – a Bank of Canada speaker will be out today as the only way is to the hawkish side from BoC guidance. Meanwhile, downside risks from weaker oil prices. USDCAD looks higher as long as we maintain recent support levels.

NZD – how much can the Reserve Bank of New Zealand add this week after more or less putting its rate outlook on ice the last time around? The only thing supporting the kiwi is global markets’ raging case of bullishness and complacency. Still, kiwi bears not getting much traction until we see a fresh selloff in NZDUSD through perhaps 0.6950.

SEK – rapidly losing interest in the price action, but generally focusing lower in EURSEK as long as we hold below the 9.55-8 area.

NOK – EURNOK looks to remain on a rally track as long as we remain above perhaps 9.00-05, but need a follow up rally soon or we risk getting bogged down in a range with the bottom edge extending a bit lower.

Upcoming Economic Calendar Highlights (all times GMT)

  • 0930 – UK Feb. CPI 
  • 1035 – US Fed’s Dudley and BoE’s Carney at London Event 
  • 1100 – UK Mar. CBI Trends in Total Orders and Selling Prices 
  • 1230 – Canada Jan. Retail Sales 
  • 1230 – US Q4 Current Account Balance 
  • 1600 – US Fed’s George to Speak 
  • 1945 – Canada Bank of Canada’s Schembri to Speak 
  • 2200 – US Fed’s Mester to Speak 
  • 2350 – Japan BoJ Minutes of Jan 30-31 meting
  • 2350 – Japan Feb. Trade Balance
  • 0140 – Australia RBA’s Debelle to Speak

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank

Martin O'Rourke Martin O'Rourke
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