Article / 23 October 2014 at 7:18 GMT

FX Update: USD strength broadens ahead of FOMC

Head of FX Strategy / Saxo Bank
  • USD shows strength on back of positive CPI figures
  • NZD heads lower following central bank address
  • Norges Bank likely to downgrade projections

By John J Hardy

After slightly higher than expected US Consumer Price Index data for September yesterday, the US dollar's strength broadened a bit beyond the USD/major European pairs, with AUDUSD now more firmly back in the range after yesterday's slightly weaker Australia CPI print. 

New Zealand's third quarter CPI data was released overnight and was a bigger miss to the downside, which saw the NZD really lose steam with a deeper plunge away from the 0.8000 level in NZDUSD and a fresh rally in AUDNZD that will rekindle bullish hopes if it extends back toward 1.1250. 

The technicals remain impressively bearish for AUDUSD and NZDUSD if we get breaks below those recent (and multi-year) lows. 

The NZD also headed lower after Reserve Bank of New Zealand governor Graeme Wheeler was out citing the success of macro-prudential measures in putting a lid on house price appreciation. Wheeler also noted that such measures impacted CPI as well, thus having the impact of a 25-50 basis point rate hike without actually doing so. This has allowed the RBNZ to delay policy tightening and discourages carry trades.


All signs point to continued weakness for the major Kiwi crosses. Photo: SWB Creative \ iStock

EURUSD looks like it wants to retest the 1.2500 lows, which may keep the action corralled for now until we see the other side of the Federal Open Market Committee meeting next Wednesday. 

We must watch out for today’s flash manufacturing Purchasing Managers Index data out of Europe and Germany’s October Ifo data on Monday. USDJPY, meanwhile, is eyeing that 107.40/50 area and looks like it wants to test the waters to the upside, where the next big level is 108.20 (as seen on the chart below).


The USDJPY intraday chart shows the importance of the 107.40/50 area line in the sand. A break would likely at least set up a test of the 108.20 61.8% Fibonacci retracement of the selloff wave. The green line suggests we may be looking at a local upside-down head and shoulders formation .

Source: Saxo Bank 

Norges Bank meets today and will have to downgrade the extremely complacent projections on policy and the economy from its September meeting. The question is how much of that adjustment is already in the price. I would suggest some, but not all, considering where Norwegian rates have headed in the wake of the weaker than expected CPI data in September and the slide in crude prices. 

With the latter back towards their recent and cycle lows coming into today’s meeting, I would suspect that the risk remains for a test of 8.50 and beyond to the upside for EURNOK.

UK retail sales data is up today and could swing the market either way, though strong retail sales is not the kind of good news that the UK needs — it needs better production, current account and higher wage news, so beware of an excessively strong reaction to positive data. 1.6000 is the battle ground for GBPUSD, while 0.7875 is an important support zone for EURGBP.

Economic Data Highlights

  • New Zealand Q3 GDP out at +0.3% QoQ and +1.0% YoY vs. +0.5%/+1.2% expected, respectively and vs. +1.6% YoY in Q2. 
  • Japan Oct. Preliminary Markit/JMMA Manufacturing PMI out at 52.8 vs. 51.7 expected and 51.7 in Sep. 
  • China HSBC Manufacturing PMI out at 50.4 vs. 50.2 expected and vs. 50.2 in September 

Upcoming Economic Calendar Highlights (all times GMT)
  • France Oct. Markit preliminary Manufacturing/Services PMI (0700) 
  • Germany Oct. Markit/BME preliminary Manufacturing/Services PMI (0730) 
  • Sweden Sep. Unemployment Rate (0730) 
  • Norway Deposit Rates Announcement (0800) 
  • Euro Zone Oct. preliminary Manufacturing/Services PMI (0800) 
  • UK Bank of England’s Broadbent to Speak (0810) 
  • UK Sep. Retail Sales (0830) 
  • UK Sep. BBA Loans for House Purchase (0830) 
  • UK Oct. CBI Trends in Total Orders and Selling Prices (1000) 
  • US Weekly Initial Jobless Claims (1230) 
  • US Oct. preliminary Markit Manufacturing PMI (1345) 
  • Euro Zone Oct. Consumer Confidence (1400) 
  • Euro Zone ECB’s Linde to Speak (1730) 
  • New Zealand Sep. Trade Balance (2145) 

-- Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank.
thewickedwiz thewickedwiz
Dollar yen had a very similar move in 2014.Rapid decline then recovery then second move down.
Despite my long term bullish stance on the USD it is quite possible that the whole consolidation will take another three weeks or even longer.Last time took seven months...I don't see that this time as fundamentals are changing.
See my medium term chart.


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