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 / 06 March 2018 at 8:25 GMT

FX Update: Market hopes Trump will change mind on tariffs

Head of FX Strategy / Saxo Bank
  • Market mood lifts as senior Republicans try to rein in Trump's tariffs
  • White House adviser Cohn assembling industry bosses to dissuade Trump
  • The hope is that Trump will change course over threat to US jobs


Can industry leaders win over Trump where his own advisers have failed?
Pic: Casa nayafana /

By John J Hardy

The market mood brightened suddenly yesterday as Republican House speaker Paul Ryan weighed in against President Trump’s tariff threats and as White House economic adviser Gary Cohn was said to be scrambling a number of business leaders in US industries that would be negatively impacted by new tariffs on steel and aluminum for a summit at the White House. A talk with CEOs is perhaps more likely to avert Trump’s commitment on tariffs than his own advisers, who he often seems to distrust. There seems a sense of hope that if Trump can be convinced that the tariffs would cost more jobs than they would save, a change of course is possible. And given Trump’s clearly demonstrated ability to change sides on an issue with little warning, nothing is a done deal until the tariff measures are signed into law. An EU official this morning aired the idea of enacting tariffs on US steel, denim and bourbon, giving us an idea where things will head if the tariffs go into effect. 

The rise in risk appetite saw the JPY weaker overnight in the crosses, with some help from a very dovish Haruhiko Kuroda, who may have been spooked by the market’s reaction to prior comments about the Bank of Japan’s eventual path to unwinding monetary policy accommodation. He made it clear that a 2% inflation level was needed before the BoJ saw any need to unwind accommodation. As well, he fretted about the lack of wage growth and suggested that no inflation will arrive if wages don’t rise. He certainly erred on the side of dovish caution, refusing to speculate on the possible timing of an end to negative interest rates, and the market backdrop of improved risk appetite was wind at his back. Significantly, the Nikkei stock index has been saved once again after briefly having a look through its 200-day moving average again yesterday.

The Reserve Bank of Australia meeting overnight was a relative non-event for the Aussie, which backed up slightly, but shied away from a break of the 200-day moving average in AUDUSD. The RBA suggested caution by downgrading its growth expectations and suggesting that the elusive first rate hike remains well over the horizon.

USDCAD continued to charge higher despite the market rally yesterday theoretically driven by hopes that Trump’s tariff intentions can be averted. The rush all the way to the pivotal 1.3000 area is somewhat surprising given the narrative that a weak CAD is chiefly driven by threats from Trump’s protectionism. Regardless, it is the technical line in the sand for now and a further rally could open up the range all the way to 1.3800.
Source: Saxo Bank 

The G-10 rundown

USD – the USD is rather mixed and doesn’t feel like the market has a bead on what to do with the greenback here. If we go back to the situation before the flap over tariffs, it was the risk of a more hawkish Fed and concerns about the larger US deficit – two countervailing drivers that could keep the situation confused for now.

EUR – the euro is trying, so far successfully to put the Italian election behind it. The situation is a long term concern, but seen as providing little short term fallout. EURCHF is perhaps a proxy for this, and yesterday’s sharp rally there and in EURJPY suggest that Euro bulls are having a go here. The local pivot area for EURUSD is 1.2350+

JPY – The JPY rally was quite extended recently, and a more dramatic thawing in the market’s mood, together with a dovish broadside from Kuroda has seen some sharp consolidation. EURJPY is an interesting test case for whether the JPY rally can hold broadly, as it tested 200-day moving average resistance overnight. USDJPY resistance is 106.50-ish if the bear market is to maintain course.

GBP – sterling tried to put together a modest rally yesterday, but the EU side continues to shoot down hopes that things are moving in the right direction in Brexit negotiations.

CHF – EURCHF rallied to new local highs, the first real opening for the bulls in while and comes just after the Italian election. A smart move higher to 1.1800 could firmly re-establish the longer term bullish outlook for the pair.

AUD – AUD put together a modest rally overnight, but the more cautious tone on the growth outlook from the RBA kept AUDUSD below the 200-day moving average.

CAD – surprising not to see the CAD failing to consolidate a bit, given the hope that Trump’s tariff threats are not yet a done deal. USDCAD looks pivotal in the 1.3000 area, and the price action suggests someone is convinced that the CAD will head lower still.

NZD – NZDUSD looking heavy and we have a rather clearly etched pivot level around 0.7175 for downside risks – both the range low and the 200-day moving average.

SEK – not sure where the bottom is for the beleaguered krona – minor Swedish data up today.
NOK – Region survey today from Norway – Norwegian rates extending aggressively higher, but this isn’t driving NOK strength.

Upcoming Economic Calendar Highlights (all times GMT)
  • 0900 – Norway Feb. Region Survey 
  • 0930 – South Africa Q4 GDP 
  • 1230 – US Fed’s Dudley (Voter) to speak 
  • 1500 – Canada Feb. Ivey PMI 
  • 1500 – US Jan. Factory Orders 
  • 1600 – New Zealand Feb. QV House Prices 
  • 1815 – UK BoE’s Haldane to speak 
  • 2135 – Australia RBA’s Lowe to speak 

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank


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