A nervous one week wait begins

Forex 5 minutes to read
Picture of John Hardy
John Hardy

Head of FX Strategy

Summary:  Yesterday saw a short-term peak in both the run higher in US equities and US yields, which helped keep USDJPY away from its first major resistance level. The pivot in those markets could mark the beginning of a very nervous wait for next Wednesday’s FOMC meeting.

The brutal rally in US equities finally faltered yesterday, which also helped put a bid under US treasuries just as the latter had slipped to a local low and thus drawing a line in the sand for the recent back up in US yields and back-up in USDJPY, which passively tracks US long yields.

The action in the USD is otherwise lacklustre and it all feels like a very nervous wait for the June 19 Federal Open Market Committee meeting where the Powell Fed has the unenviable task of communicating with a market that has already pre-celebrated with a considerable dose of the policy punch. At the same time, the still very flat yield curve suggests that the market doesn’t believe that any Fed easing will impact growth and inflation for the longer run. Is the market saying then: “Thanks for the cuts, Jay, great for asset prices, but too bad about that inflation thing.” 

In other words, the Fed’s “patience” and talk of an asymmetric inflation target is futile as the Fed does not have the ability to bring inflation via interest rate adjustments or with its now-deemed-conventional QE.  A steepening yield curve would suggest that Fed cuts are seen as eventually providing some traction on inflation, but that hasn’t really happened so far outside of marginal steepening at the very long end of the curve (30-year). Will the Fed recognise this more openly at some point and how would the market absorb such an admission? 

Another angle for the here and now is whether the Fed wants to send too dovish a signal and encourage a fresh binge of stability-threatening speculation when US equities have edged back within a couple of percent of all-time highs. Better to wait either for clear signs that the US economy is slowing or a more ominous phase of the US-China trade policy showdown to develop? So, the Fed may get to where the market is saying it will be by year-end, but may be unwilling to do the deed until the writing is on the wall. 

Some minor inputs into next week’s FOMC meeting in today’s May CPI release and Friday’s US Retail Sales report, but everyone, including the Fed, will more closely watch the June 28-29 Osaka G20 summit for a status check on the US-China trade showdown.

Chart: EURAUD monthly

We flagged EURAUD in our FX Breakout Monitor yesterday as an interesting one, both on the local break of resistance, but also for the bigger picture, as the highest weekly closing level for the pair since late 2009 is not far (1.6338) from the current level. It may appear locally that EURAUD is elevated, but its pre-financial crisis trading range was centered around here to a bit higher, so this is not an exceptionally elevated level historically. Australia’s latest jobs report is up tonight, with considerable possible impact on a surprise, given the Reserve Bank of Australia’s linking of its policy plans to the strength of the labour market.

Most emerging market currencies have seen a solid run of strength in recent days as the run-up in rate cut anticipation from the Fed has driven a chunky global risk appetite rally, not only in equities, but also in corporate and emerging market credit spreads. The Mexican peso has benefitted the most since the weekend on Trump’s reversal on tariff threats, but ZAR and RUB and most Asian EM FX are well away from recent lows versus the US dollar as well. 

The critical next test for the always-USD and US yield-sensitive EM will be next week’s FOMC meeting discussed above. Today, Turkey’s central bank meets and a minority are looking for a rate cut of the 24% one-week repo rate. Turkish short rates have fallen rapidly over, largely in general correlation with EM credit spreads. The Turkish two-year swaps spiked above 30% in early May but are now back down below 23%.

The leadership election process for the UK’s Conservative party gets into full swing tomorrow with the first vote for the 10 candidates, with all of those failing to achieve 17 or more votes to be dropped in the beginning of a winnowing process that reduces the number of candidates to two by June 22, whereupon a month-long write-in voting process begins, with the winner to be declared on July 22. Boris Johnson leads the race with the BBC late yesterday estimating he has 70 of the 330 Conservative MPs’ support. I will be doing a write up on the Brexit endgame from here in the coming day or two and some thoughts on how to position in sterling. 
Source: Saxo Bank
Upcoming Economic Calendar Highlights (all times GMT)

11:00 – Turkey Central Bank Rate Announcement
12:30 – US May CPI
14:30 – US Weekly DoE Crude Oil and Product Inventories
23:01 – UK May RICS House Price Balance
01:30 – Australia May Employment Change
01:30 – Australia May Unemployment Rate

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. 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 Saxo News & Research 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 Saxo News & Research 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 Saxo News & Research or as a result of the use of the Saxo News & Research. 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. Saxo News & Research 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 our trading 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 Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.