Yields on core European bonds went for a slide yesterday as prices rose in response to the ECB's decision to leave its QE programme unchanged – for now at least. Elsewhere, the USD continues to make gains on its peers.
Article / 24 May 2016 at 7:53 GMT

FX Update: USD remains on top, EURUSD support under pressure

Head of FX Strategy / Saxo Bank
  • Secret PBoC minutes suggest political decision on CNY stability
  • Pressure on TRY expected to keep Turkish interest rates steady
  • RBA's Stevens 'dissatisified' with Australian economy
  • Japan's Aso defines five-yen move in two days as 'disorderly'

By John J Hardy

A Wall Street Journal article discusses “undisclosed minutes” of the March Peoples Bank of China meeting and suggests that while economist and bankers argued strongly in favour of allowing the market to set the value of the yuan, they got nowhere and a political decision was made to maintain stability in the exchange rate. This comes as no shocker, as this story is already written into the chart, and the question remains how long China can maintain the in-the-long-run impossible “trilemma”. In the meantime, the CNY stability allows the Fed the luxury to talk up rate hikes - at last until the USD pressure becomes too intense once again.

Turkey’s central bank will announce rates today, with no change to the rate expected, given the pressure on TRY and all EM currencies on the latest Fed hawkishness. Keep in mind when having a look at USDTRY charts, however, that charts of the spot exchange rate have little to do with investors’ actual returns due to the huge interest rate spread. So, for example, a buyer of USDTRY at today’s level around 3.00 will approximately break even on a six-month holding period if USDTRY trades at about 3.15 in six months.

Hungary’s central bank is also meeting and is expected to shave rates further to 0.90%, an incredibly low rate for a country that has a below investment grade rating on its sovereign bonds. HUF and other CEE currencies have suffered under the latest Fed hawkishness and due to the largest of the economies, Poland’s new, somewhat Orban-styled government that has cast a shadow over PLN.

Reserve Bank of Australia governor Glenn Stevens was out speaking overnight, generally expressing dissatisfaction with Australia’s economy and clearly happy to see the Aussie lower and acting as a “shock absorber”. Recall that Stevens passes on the baton to his colleague Lowe in September.

Japan’s Finance Minster Aso was out with milder comments overnight, including an attempt to define what constitutes a “disorderly” move – now outlined as a five-yen move in two days, thus qualifying the recent meltdown as disorderly. His other comments seen as somewhat milder and stepping down from more belligerent recent comments, and this saw USDJPY easing lower overnight. Still, JPY strength is a tough pill to swallow in an environment of Fed hawkishness and further JPY strength from here may require constant pressure on asset markets.


EM currencies are getting hit the hardest with the return of Fed hawkishness and it is interesting in recent months to see volatility returning to the CEE currencies as well, led by PLN. Today, Hungary’s central bank meets to decide on rates and is expected to cut the rate to below 1.00%, a remarkable feat for a country with a below investment grade rating. Of course, one can argue that Hungary has the luxury to afford low rates, given deflation and a large current account surplus, but it'll be interesting given the current market conditions how the market treats the currency if the bank cuts. Also note that EURHUF is toward the top of its longer term range and could shake complacency on a break as well and open up for new levels of HUF volatility.


Source: Saxo Bank. Create your own charts with SaxoTrader click here to learn more

The G-10 rundown, express version

USD – strong for the obvious Fed-led reasons and looking to next key US data points for next test of the current market regime.

EUR – 1.1200 area proving a bit of a tough nut to crack, but EURUSD possibly warming up for 1.1100 run and lower next.

JPY – focus is on risk aversion, the only apparent support for JPY when US rates are rising.

GBP – EURGBP looks bearish if we can hold the 0.7750 area, though wobbly risk appetite not usually supportive of sterling.

CHF - things have gone a bit quiet here as we watch whether EURCHF can maintain the 1.1100 area.

AUD – Weaker still on RBA’s Stevens’ comments overnight – looking for 0.7000 as last area ahead of cycle lows in AUDUSD. Note AUDJPY levels getting interesting as well.

CAD – weak with extra risk if oil weakens and BoC talks dovish tomorrow – watching for 1.3350 potential in USDCAD.

NZD – Kiwi escaping notice due to focus on rate expectation avalanche in AUD, but should be far weaker, especially if we suffer a broad risk–off move.

SEK – market doesn’t like small currencies, but SEK is relatively cheap versus euro.

NOK – vulnerable if 9.40 breaks in EURNOK, especially if oil suffers a larger dip.

Upcoming Economic Calendar Highlights

  • Germany May ZEW Survey (0900) 
  • UK BoE’s Carney, Broadbent, others appear before parliamentary committee (0900) 
  • Eurozone ECB’s Liikanen to Speak (0910) 
  • Turkey Central Bank Rate Announcement (1100) 
  • Hungary Central Bank Rate Announcement (1200) 
  • US May Richmond Fed Manufacturing Index (1400) 
  • US Apr. New Home Sales (1400) 
  • New Zealand Apr. Trade Balance (2245) 

– Edited by Clare MacCarthy


John J Hardy is head of FX strategy at Saxo Bank


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail