Article / 30 September 2015 at 7:47 GMT

FX Update: USD pairs in suspended animation

Head of FX Strategy / Saxo Bank
Denmark
  • We await the next catalysts, most notably Friday's US employment report
  • Fed's Dudley and Yellen to speak but few developments expected from either
  • Japan's Tankan survey overnight could be the next event risk - JPY easing lower
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Japan's Tankan survey of business confidence could be a catalyst for JPY. Photo: iStock

By John J Hardy

The negative momentum in risk sentiment fizzled yesterday, leaving us in this frustrating state of suspended animation as we await the next catalysts, most notably this Friday’s US employment report. The technical situation across virtually all USD pairs remains one of treading water within recent ranges as we watch the data and wonder whether the end of quarter will generate any one-off flows that are tough to attribute to the news flow. 
 
In economic calendar news, Japan’s industrial production figures for August overnight were very weak, New Zealand business confidence bounced from multi-year lows the previous month, and UK consumer confidence edged lower after posting a 15-year high in August.

Today’s key events serving as potential catalysts for the next leg of market action include the Eurozone CPI up at 0900 GMT and the US ADP payrolls change number later today. We have two key Federal Reserve Bank officials out speaking later – NY Fed’s William Dudley and the Fed Chair Janet Yellen, though the speaking topics are unlikely to lead to any notable developments.

Watch out for the Tankan survey from Japan overnight, which is a comprehensive quarterly survey of business confidence. Japan's Prime Minister, Shinzo Abe, was out reiterating the growth target of 20% in nominal GDP and the current policy mix is not going to get Japan there. We have the next Bank of Japan meeting next week (announcement Wednesday October 7).

Chart: EURUSD

EURUSD remains extremely uncertain as we trade in the middle of the range (1.1100-1.1300) within the range (1.0800-1.1500) within the range (1.05-1.17+). Local resistance looks like 1.1275/1.1300 now and the first downside catalyst is a move below the 1.1100 downside range support in the wake of key US data later this week.

EURUSD daily chart

EURUSD
Source: Saxo Bank

The G-10 rundown

USD: The dollar looks very passive at the moment, awaiting catalysts. Still, objectively, the currency looks reasonably supported and could rally sharply against JPY, CHF and EUR if we get a bounce in risk appetite and see positive jobs numbers as early as today (ADP payrolls change), but certainly if we see strong numbers on Friday that will increase the buzz on a potential October Fed rate hike.

EUR
: Today’s Eurozone release could generate a strong reaction, especially on a downside surprise. The EUR has been strongly lately on the downshift in Fed expectations and weak risk appetite, with the latter the chief support for the single currency. Would be interesting to see if a strong rally in risk puts the Euro bears back in control here.

JPY
: Tankan survey overnight is the next event risk. JPY easing back lower as risk off momentum has faded and we watch USDJPY as the barometer for JPY direction as the pair remains bottled up in the 119.00-121.00 area.

GBP
: Sterling trying to hang in there as the head and shoulders formation in GBPUSD has so far failed to serve as a catalyst for a bigger selloff and a brief thaw in risk appetite keeps a lid for the moment on EURGBP. Sterling needs a strong return in risk sentiment to rally here.

CHF
: EURCHF doing nothing at the moment as we await for 1.10 or sub 1.0800 to have a technical view. USDCHF looks a bit more compelling, but we need to see broad USD strength and close above 0.9800/50 to raise interest in a potential breakout ahead.

AUD
: Continues to struggle around 0.7000 in AUDUSD and prefer that pair lower as long as we remain below 0.7025/50, with sub-0.6900 the obvious cycle-low trigger for more downside interest.

CAD
: Should be quite reactive to today’s GDP number after a string of negative month-on-month readings in prior months as Canada dances on the edge of a recession.

NZD
: The kiwi is trying to look ambitious again after stronger data overnight, and important 1.0900 area in AUDNZD nearing, with a break possibly leading to 1.0750 area 200-day moving average test. But we’re no longer term fan of the kiwi, so watching for selling opportunities in NZDUSD and eventually AUDNZD (upside).

SEK
: Solid rejection from the key 61.8% in EURSEK above 9.53 will have the bears looking to sell rallies today in the hopes of a 9.31 test.

NOK
: A strong surge in risk appetite and a weak Euro Zone CPI print are likely needed to see a notable rejection of the attempt here to cycle highs above 9.55.

Economic data highlights

  • UK Sep. GfK Consumer Confidence fell to +3 vs. +5 expected and +7 in Aug. 
  • Japan Aug. Preliminary Industrial Production out at -0.5% MoM and +0.2% YoY vs. +1.0%/+1.8% expected, respectively and vs. 0.0% YoY in Jul. 
  • Japan Aug. Retail Trade out at +0.8% YoY vs. +1.2% expected and vs. +1.6% in Jul. 
  • New Zealand Sep. ANZ Activity Outlook/Business Confidence out at +16.7/-18.9 vs. +12.2/-29.1 in Aug., respectively 
  • Australia Aug. Building Approvals out at -6.9% MoM and +5.1% YoY vs. -2.0%/+7.4% expected, respectively and vs. +17.9% YoY in Jul. 
  • China Sep. Westpac –MNI Consumer Sentiment out at 118.2 vs. 116.5 in Aug.
  •  
Upcoming Economic Calendar Highlights (all times GMT)

  • Germany Sep. Unemployment Change/Unemployment Rate (0755) 
  • Norway Aug. Credit Indicator Growth (0800) 
  • UK Q2 Current Account Balance (0830) 
  • Eurozone Aug. Unemployment Rate (0900) 
  • Eurozone Sep. CPI Estimate/CPI Core (0900) 
  • US Sep. ADP Employment Change (1215) 
  • US Fed’s Dudley to Speak (1230) 
  • Canada Jul. GDP (1230) 
  • US Sep. ISM Milwaukee (1300) 
  • US Sep. Chicago PMI (1345) 
  • Sweden Riksbank Deputy Governor Skingsley to Speak (1600) 
  • New Zealand Sep. QV House Prices (2300) 
  • Australia Sep. AiG Performance of Manufacturing Index (2330) 
  • Japan Q3 Tankan Survey (2350) 
  • US Fed’s Brainard to Speak (0015) 
  • China Sep. Manufacturing PMI (0100) 
  • China Sep. Non-manufacturing PMI (0100) 
  • Japan Sep. Final Nikkei Manufacturing PMI (0135) 
  • China Sep. Final Caixin Manufacturing PMI (0145) 
  • China Sep. Caixin Services PMI (0145) 

-- Edited by Adam Courtenay

John J Hardy
is head of forex strategy at Saxo Bank

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