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 / 08 February 2018 at 8:20 GMT

FX Update: Market still shaken as USD pulls back higher – #SaxoStrats

Head of FX Strategy / Saxo Bank
  • Rising US yields heighten market nervousness
  • China's yuan in massive selloff as trade surplus shrinks
  • Ultra-dovish RBNZ takes market by surprise
wall street
 Things are stabilising but markets remain extremely nervous. Pic: Shutterstock

By John J Hardy

Risk appetite peaked in the US session yesterday but declined badly into the close before stabilising a bit in Asia. The most notable overnight, besides in the kiwi (more on that below), was the largest selloff in the Chinese yuan in months in the wake of a much lower than expected trade surplus for the month of January. It is hard to take much away from the trade balance data due to the usual distortions of the Lunar New Year and when it falls, but the move in the currency has broader implications and looks USD supportive, particularly versus EM. 

The US Senate has passed a deal that will end the budget ceiling charade for two years, but it is questionable whether the House Dems are ready to go beyond their deal that would only extend funding to March 23, as House minority leader Nancy Pelosi has declared intent to link a bigger deal with clearing up the status of DACA immigrants. She stood on the house floor for eight hours overnight in demanding a deal for DACA "dreamers".

The Reserve Bank of New Zealand caught the market on the wrong foot late yesterday as it spelled out an intention to keep rates on hold until mid-2019 and said it expected the kiwi to weaken and that “the growth profile is weaker in the near term but stronger in the medium term”. The market has been caught leaning the wrong way after a recent string of positive NZD developments, particularly a strong dairy auction this week and the strong employment numbers for Q4. The recent weak CPI number was a counterweight to those developments. After crossing below the pivotal 1.0850 threshold in AUDNZD, the pair finds itself back above that level overnight and this may be the end of the relative NZD strength, particularly if risk conditions remain rocky as the NZD is rather illiquid and looks rich at these levels against the broader market.

The ugly selloff in crude oil prices looks to be of a decisive nature and the effects are being felt in the crude-linked currencies. USDCAD Is not far from challenging the upside pivot area above 1.2600 and the ruble has crumbled badly as this latest selloff in oil is seen as dramatically raising the odds that the Russian central bank cuts by 50 basis points tomorrow rather than 25 basis points.


We continue to watch EURJPY with intense interest and we have noted that from a positioning perspective, a broader deleveraging across markets if the recent equity market contagion spreads could see position squaring in the most heavily positioned currencies. And the speculative market is very long of euro and very short of the yen. The technical are getting more interesting as we are into key support areas like the Ichimoku cloud here after having largely reversed the recent surge higher.
 Source: Saxo Bank

Looking ahead

We have a Bank of England meeting today where it is hard to conjure up a Carney that wants any drama from the situation on the overhang of Brexit uncertainty and after mostly tepid growth data. The governor may, perhaps, be happy to note that recent sterling strength has taken the edge off inflation risks and vaguely indicate that this buys some time before the BoE feels the need to hike again – so the market could lower anticipation of a rate hike at the May or June meetings.

The G-10 rundown

USD – the US dollar is looking much healthier here and many USD pairs are rolling over in the greenback’s favour. This move could extend on further market volatility as general deleveraging of positioning and weakness in EM (especially after signal from the Chinese currency overnight) would be USD supportive.

EUR – as we discuss above, the euro looks vulnerable from a positioning perspective here and has rolled over in the key EURUSD pair as 1.2325-00 was taken out yesterday, a technical break that could open for 1.2100 or lower.

JPY - as noted yesterday, the JPY is the most prone to appreciate sharply if risk conditions dramatically worsen, and could even outperform a strong USD in such circumstances.

GBP – sterling has made a comeback versus the struggling euro near the range highs in EURGBP, but we see few chances for hawkish takeaways from the BoE today and the currency will not be a notable performer if risk conditions worsen. 1.3840 is an important pivot lower in GBPUSD and could open for a full test of the structural support at 1.3650 if broken.

CHF – the franc looks like the weaker cousin of the JPY, though not sure how much its safe haven reputation is deserved these days. EURCHF at 1.1500 looks important as a broader indicator on the franc, while USDCHF is trying to put together a rally as the price action below 0.9400 as been rejected.

AUD – the Aussie’s fortunes have been revived slightly versus the suddenly struggling kiwi, but struggling to find supportive notes for the currency after the overnight move in the CNY. AUDUSD starting to shift to full “breakdown” status if the 0.7750 area (Fibo a bit lower, 200-day SMA a bit higher).

CAD - CAD is in bad shape after the weak oil price drop yesterday on US weekly inventory data, but USDCAD hasn’t gone full bullish reversal yet, which requires a move through the next key 1.2600-50/65 zone.

SEK – EURSEK could test 10.00 again if risk aversion returns – so far the resistance has developed at the last major retracement (61.8% Fibo) of the selloff wave near 9.9250.

NOK – the EURNOK consolidation has been gentler than for EURSEK – this morning’s CPI stress tests the NOK bulls, as did the ugly decline in crude oil yesterday. Next resistance level higher is the 61.8% Fibo at 9.8150

  • Upcoming Economic Calendar Highlights (all times GMT) 
  • 0830 – Sweden Jan. Average House Prices 
  • 0845 – ECB’s Weidmann to Speak 
  • 0900 – Australia RBA’s Lowe to Speak 
  • 0915 – US Fed’s Kaplan (non Voter) to speak 
  • 1015 – ECB’s Villeroy to speak 
  • 1030 – ECB’s Mersch to speak about cryptocurrencies 
  • 1045 – ECB’s Praet to Speak 
  • 1200 – UK BoE Meeting and Inflation Report 
  • 1230 – UK BoE’s Carney Press Conference 
  • 1300 – US Fed’s Harker to speak 
  • 1315 – Canada Jan. Housing Starts 
  • 1330 – US Weekly Initial Jobless Claims 
  • 1600 – New Zealand QV House Prices 
  • 1745 – Canada BoC’s Wilkins to speak 
  • 1900 – Mexico Overnight Rate 

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank

08 February
Patto Patto
Good summary John.


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