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 / 18 January 2018 at 8:34 GMT

FX Update: USD avoids fresh lows as US yields lift – #SaxoStrats

Head of FX Strategy / Saxo Bank
  • US yields lifted all along the curve late yesterday
  • Greenback enthusiasm may be linked to Apple's massive cash repatriation
  • Russian officials speak out against stronger RUB
  • China's Q4 GDP at 6.8% (but there's reason to question this)

 This ruble strength doesn't suit the Kremlin. Pic: Shutterstock

By John J Hardy

News in brief: 

  • US Fed Beige Book is not normally a market mover, but may have shifted the attitude at the margin late yesterday on clear indications of a tightening in the US labour market, though wage pressure was seen as limited. Most regions supported moderate growth. Still, US yields lifted all along the curve late yesterday and the 10-year benchmark closed at 2.59%, the highest daily close since last March and only a few basis points below the post-US election highs around 2.65%

  • Some of the enthusiasm for the greenback may be linked to Apple’s announcement that it will repatriate over $250 billion in assets under the new tax deal and pay a whopping $38 billion tax bill, also planning to invest $30 billion in the US and create 20k jobs. This was how the original “Trump Trade” was supposed to work. However, the negative angle would be that US interest rates merely popped because Apple will likely sell quite a few treasuries to pay its US tax bill (and other big corporates could do likewise).

  • Russian officials posted some rather stark language on the ruble as USDRUB nears the 56.00 level, an obvious move at verbal intervention. The Russian finance minister warned against euphoria on the ruble linked to the strong oil price and promised heavy purchases of foreign currencies.

  • China reported 6.8% GDP growth for Q4, for what it is worth (increasingly in question as news has emerged lately of massive negative GDP revisions for some regions) and retail sales growth was reported lower.

Chart: USDRUB weekly

Yesterday, the Russian Finance Minister Siluanov said he wouldn’t allow the exchange rate to strengthen sharply and pointed out that significant foreign currency purchases are planned. A look at the chart suggests that officials don’t want the ruble significantly stronger from here and may be defending it near the 56.00 area that was the prior low in USDRUB.

 Source: Saxo Bank

The G10 rundown

USD – the lifting of US rates all along the curve providing a boost for the greenback – but we need EURUSD down well below 1.2100 and USDJPY up through 112.00 to start calling a reversal to the weak USD narrative.

EUR – the European Central Bank rate expectations are bogging down after the shock provided by the minutes last week – we won’t have a firm status check on the euro outlook until next Thursday’s ECB meeting.

JPY – The Bank of Japan to report its buying plans for JGB’s tonight – recall that shifting amounts of purchases for longer dated JGB’s engendered considerable volatility recently. If the long US yields continue higher and BoJ seen as offering no indications of a shift in priorities, USDJPY may rebound again – watching 111.75-112.00 as upside pivot.

GBP – sterling tends to shine when the bid drops out of the euro – watching the 0.8800 area in EURGBP, which has developed as a smaller range low within the bigger 0.8700-0.9000+ range.

CHF – ECB expectations have gone nowhere since the shock last week from its minutes – EURCHF bulls may remain cautious on more euro strength until next Thursday’s board meeting.

AUD – strong payrolls numbers from Australia overnight, but the unemployment rate ticked up (though on the positive news that the participation rate was 0.2% higher). The AUDUSD rally is looking overbaked without a more notable upgrade to the Reserve Bank of Australia path from here – watching whether 0.8000 level stands firm for now as resistance.

CAD – The Bank of Canada didn’t offer a compelling shift in guidance, as it raised concerns on NAFTA and risks to investment in Canada linked to US tax reform, but was generally positive on the economy and the need to continue to hike. USDCAD trigger area higher not until 1.2600+
NZD – two-way traffic developing in NZDUSD around the 0.7300 area after persistent run higher from below 0.6900. The market may need to digest the move now, with first support coming in above 0.7100

SEK – one of the known Riksbank hawks, deputy governor Henry Ohlsson, was out yesterday talking up the need to normalise policy and pointing to early 2019 as appropriate timing for a rate hike. EURSEK responded and looks heavy again into 9.80-75 pivot zone. May have a chance for a solid break lower with euro strength taking a breather.

NOK – EURNOK having a go at the pivotal 9.60 area, which could open up for 9.40 or lower on a break. Oil prices may be volatile today on OPEC’s monthly report and the weekly US inventory figures.

Upcoming Economic Calendar Highlights (all times GMT)
  • 1100 – Turkey Central Bank Rate Decision 
  • 1330 – Canada ADP Employment Numbers 
  • 1330 – US Dec. Housing Starts and Building Permits 
  • 1330 – US Jan. Philly Fed Survey 
  • 1430 – ECB’s Coeure to Speak 
  • 1600 – US Weekly Oil Inventories 
  • 1730 – ECB’s Villeroy to Speak 
  • 0110 – Japan BoJ Bond Purchases 

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank

fxtime fxtime
I thought it was the USA ADP at 13:30 not the Canadian ADP as shown ?
Good overview John :-)


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