The End Game has arrived
Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
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'A swamp of uncertainty'
John Hardy
Head of FX Strategy
Equity traders pressed the eject button once again on Friday after the latest round of trade threats from the Trump administration, while currency markets failed once again to react much to the hysterics.
To recap, the US jobs report on Friday failed to provide anything compelling for the US dollar: the weak +103,000 headline payrolls number appeared to be a shocker, but given other strong jobs-linked data and the prior month’s absurdly strong 326k number we must keep in mind that month-to-month developments are random and the moving average is healthy.
As well, earnings data ticked up as expected, so fresh takeaways were absent. Ahead of the US jobs report, EURUSD made a weak stab at new multi-week lows, but the downside was quickly corralled on the weak payrolls number and the pair managed to close at nearly unchanged levels for a stunning six weeks running.
The USJDPY rally’s ambitions were likewise attenuated by the weak US jobs report and a fresh bid in Treasuries, but the sell-off remains muted so far.
It all looks like a bad case of limbo and sitting on our hands to see what unfolds next. On that note, Wednesday looks like the pivotal day this week in event risk terms, with the US March CPI data expected to show the first rise in the core inflation level to above 2.0% for the first time in 12 months.
Meanwhile, we have the ongoing headline risk of trade-related issues and now the added risk of a military and/or diplomatic response to the gas attack in Syria.
Chart: EURGBP
Technically, one of the few interesting compelling developments at the moment is the attempt through major support in EURGBP, which closed at the lowest weekly level last week since last summer.
It is tough to draw a bead on any specific catalyst for this move, but rising UK rates (while ECB expectations have collapsed) provide some support at the margin. Technically, a break of the sub-0.8700 area could open up considerable downside, where the lower range stretches to at least 0.8350. Fourth rejection of a break attempt or a new downtrend?
The G-10 rundown
USD – the greenback is going nowhere in a hurry after the jobs report failed to build the "Fed-needs-to-play-catchup" narrative. But neither does the big dollar appear to be in any trouble at the moment as we await the CPI data and FOMC minutes up on Wednesday.
EUR – is it too much to hope for directional resolution in EURUSD this week after six weeks of none, and thinking that last week might finally be the weak we break out of the move? If risk appetite stages a rally after the latest downdraft into the Friday close, the single currency may prove weak in the crosses against traditionally risk-correlated currencies.
JPY – the strong JPY move since January has largely run out of steam, as even the lowly AUD has managed to turn the short-term corner versus the yen over the last week. Watching now how far the JPY consolidation extends and whether USDJPY suffers a trend reversal (107.50 area rather pivotal for the shortest term). Recall that the beginning of April is the beginning of the new financial year in Japan, so that could be behind the timing of the yen consolidating here.
GBP – sterling closed last week in fine form and could be set for more this week, though there are few notable event risks on the calendar. UK rates continue to push at the highs for the cycle, while Eurozone rates have been dribbling lower for weeks. Is it finally time for sterling to make a move against the euro?
CHF – EURCHF pushing at the highs for the cycle recently, and USDCHF had a look at the 200-day moving average last week as CHF bears gun for new lows. Stable risk appetite and higher yields would seem to provide better tailwinds for franc sellers.
AUD – the Aussie is refusing to give up ground versus the US dollar and has managed to remain firm against the very weak JPY of late. Contrarians may look for an AUDUSD rally in the short term.
CAD – USDCAD punching to new local lows last week below 1.2800 and the more notable pivotal levels to the downside don’t come into view until 1.2600-50.
NZD – the little kiwi brushed back a mild AUDNZD rally attempt late last week and appears ready to gun for the next range lows into sub-1.04 territory. Next event risk of note up next Wednesday in the form of Q1 CPI.
SEK – a weak euro scenario and decent comeback in risk appetite needed to provide any relief for the krona’s long slide, though momentum has come out of the EURSEK rally and we could at least test the first trend support into 10.15-20 if conditions are favourable and the Swedish CPI print on Thursday offers support for the krona.
NOK- the latest CPI data from Norway up already tomorrow – stay tuned. A close back south of 9.53 or so in EURNOK suggests NOK upside potential.
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