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 / 22 December 2017 at 8:39 GMT

FX Update: MXN struggles, EUR shrugs off Catalan vote – #SaxoStrats

Head of FX Strategy / Saxo Bank
  • Euro relatively stable despite separatists Catalan victory
  • Mexican peso sharply lower on a fresh political scandal
  • Solid CAD rally yesterday on very strong Canadian retail sales data


National Palace in Plaza de la Constitucion, Mexico City. The peso is struggling as a new corruption scandal breaks. Pic: Shutterstock

By John J Hardy

The Catalan regional election saw a slim victory for the three pro-independence parties. But as there are stark divisions on policy within these parties, the implications are likely limited and Spain-Germany 10-year spreads are only some 5-6 basis points wider this morning. As well, the anti-independence Ciudadanos party gained the strongest single mandate. 

The peso is not playing the strong EM tune – EM currencies have been generally resilient to strong recently, but not the Mexican peso, which took a further ugly beating yesterday on a deepening political scandal about the misuse of public funds that were used as campaign money by the increasingly unpopular ruling PRI party. Peso traders are concerned that a strong victory by the left-populist Obrador at the election next year will spell trouble for the currency.

In general, things are fairly quiet outside a solid CAD rally yesterday on very strong Canadian retail sales data (and despite mixed CPI data). Today’s follow-up data point from Canada is an interesting test for USDCAD after yesterday’s sharp selloff as the tight range has held for almost two months now. AUDUSD is trying above local resistance, meanwhile, but has to work through a number of retracement levels before threatening the still structurally negative chart.

The most important data point on the day is the US Nov. PCE inflation release set for later, with little anticipation of a surge and expectations for a tepid +0.1% increase to 1.5% for the year-on-year core reading, with headline expected at +1.8% vs. +1.6% in Oct.

Minor technical interest here as the recovery in key commodity prices and a bump in short Australian rates has helped the Aussie to pull itself up of the map versus the USD, enough to take the pair back through the 200-day moving average to a new local high. It’s a tough task to gauge the quality of technical triggers during holiday trading conditions, so we may have to suspend judgment until trading gets under way in 2018. Bears may hand on to their view as long as we remain below about 0.7900.
Source: Saxo Bank
The G-10 rundown

USD – the greenback getting little from tax reform as the market perhaps frets the fiscal implications more than celebrates any potential boost to growth.

EUR – the euro managing quite well after a brief dip overnight on the news of the three pro-independence Catalan parties gaining a slim majority in regional elections.

JPY – The recent weakening move linked to higher long bond yields – particularly in the US and a BoJ that remains committed to its policy mix. The JPY is too cheap, but could get cheaper if yields stretch higher in the near term.

GBP – the market is likely going to sit on its hands on the sterling until we get more promising Brexit news or more notable surprises in the UK data.

CHF – EURCHF trying desperately to get interesting again and seems to have survived the Catalan vote yesterday rather well – likely need a breakout in European bond yields at the beginning of the year as the market views the end of QE to see progress toward 1.2000 in EURCHF.

AUD – a strong performance built on a recovery in key commodity prices and a recovery of short Australian interest rates. Watching the 0.7700-0.7900 zone in AUDUSD for whether this is a mere consolidation or something more.

CAD – CAD tries another comeback, though we’re still bottled up in the range if the price action stays above 1.2625.

NZD – NZD weaker versus the AUD as we continue to watch the pivotal 1.1000 area in AUDNZD for signs of a rally extension. Risks to the downside for the longer term from the new NZ government.

SEK – going into 2018, we are squarely focused on the housing market and whether confidence and credit to the economy are impacted on further signs of a deepening retreat in prices. The Riksbank went too low for too long as Sweden is a laboratory for watching the effects of a QE driven housing bubble hangover.

NOK – similar setup to NOK as for SEK as the two currencies remain correlated with similar macro themes linked to housing.

Upcoming Economic Calendar Highlights (all times GMT)
  • 0900 – Norway Dec. Unemployment Rate 
  • 0930 – UK Q3 Final GDP 
  • 1330 – Canada Oct. GDP 
  • 1330 – US Nov. PCE Inflation 
  • 1330 – US Nov. Flash Durable Goods Orders 
  • 1330 – US Nov. New Home Sales 
  • 1500 – US Dec. Final University of Michigan Confidence 

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank


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