- USD longs need pretty strong data
- Japan official signals govt's willingness to work with BoJ
- Will Fischer soften or harden his stance in TV interview?
The Fed deputy chief has another chance to air his views today. Pic: Wikimedia Commons
By John J Hardy
Note: I will be holding a live FX Market Update Webinar later today with my latest perspective on the FX market and charts. You can sign up here.
Friday’s reaction to Fed chair Janet Yellen’s rhetoric (and vice chair Stanley Fischer’s added spin) was fairly large across markets, with the USD up, stocks down and treasuries down (yields up) all along the curve. Yesterday saw much of the move unwound in equities and long treasuries, even if the short end of the US curve continues to price higher rate hike odds from the Fed and the USD is relatively stable and even back stronger again overnight after a dip yesterday.
USD longs will need the US data to come in on the strong side of expectations if equity markets resume the sluggish rally and US long treasuries likewise remain stable, as the only leg for the greenback to stand on is monetary policy divergence.
Overnight, Japan’s chief cabinet secretary Suga was out overnight talking up the government’s willingness to work closely together with the Bank of Japan to end deflation, while still respecting the bank’s independence. He also talked up the ability and intent to intervene if the yen spikes stronger
Today, we have vice Fed chairman Fischer out speaking again in a televised interview (with Bloomberg TV), an interesting opportunity to revisit his Friday comments and either underline them or soften them. The USD looks like it wants to move, but some traders finding it tough to commit, perhaps, ahead of Friday's US jobs report.
The Swiss franc has under-performed the euro over the last couple of sessions, with EURCHF pushing on a big range resistance while the strong USD has entirely reversed the recent selloff in this pair. The structure of the chart looks potentially spring loaded for very large gains from here if the USD continues to strengthen and yields rise – first is the 0.9950/1.000 zone, which intersects with the descending trend-line, and then we would transition to looking for a test of the 1.0350+ highs of the cycle.
The G-10 rundown
USD – again, we’d like for better confirmation from other markets (stocks and long bonds, EM) that the “reach for yield” theme is fading for better confirmation of broad USD strength, as monetary policy divergence only makes USD very susceptible to any twist of rhetoric from Fischer today or the least bit of weakness in economic data through the end of this week.
EUR – resistance in EURUSD 1.1200 after yesterday’s action – looking for 1.1000 test if 1.1100 falls.
JPY – likely needs stronger US data and higher yields to prompt a sharper move lower in the JPY after the initial reaction Friday – 105.00 is the big level in USDJPY ahead of the September 21 BoJ meeting.
GBP – interesting UK Mortgage Approvals data up today and watching for whether the psychologically significant 1.3000 level falls in GBPUSD for a test of the post-Brexit vote lows.
CHF – interesting moves as noted in above chart comment and looking for whether EURCHF range falls.
– AUDUSD weaker again overnight and we are short
as we look for the pair to plunge back down into the heart of the range in the days ahead.
CAD – similar to AUD outlook – USDCAD bulls encouraged above 1.3000 – big break is much higher above 1.3250.
NZD – probably need firmer signs that the “reach for yield” theme is fading (both risk off while bonds don’t perform well either) for NZD weakness to become more pronounced.
SEK – 9.50+ area important for EURSEK as trigger for huge 9.60 level, as is the 9.38/40 “neckline” to the downside
NOK – EURNOK busy losing momentum again as we await 9.20 or 9.35 break and watch oil as a coincident indicator.
Upcoming Economic Calendar Highlights (all times GMT)
- 0830 – UK Jul. Mortgage Approvals
- 0900 – Euro Zone Aug. Economic/Business/Industrial/Services Confidence
- 1030 – US Vice Fed Chairman Fischer to Speak on Bloomberg TV
- 1200 – Germany Aug. Preliminary CPI
- 1230 – Canada Q2 Current Account Balance
- 1300 – US Jun. S&P CoreLogic Home Price Index
- 1400 – US Aug. Consumer Confidence
– Edited by Clare MacCarthy
John J Hardy is head of FX strategy at Saxo Bank