FX Update focus on the greenback FX Update focus on the greenback FX Update focus on the greenback

US dollar – rally or reversal?

Picture of John Hardy
John Hardy

Head of FX Strategy

The USD rally has squeezed to very uncomfortable levels for the bears – within reaching distance of the 110.00 area in USDJPY, poking below the 200-day moving average and the big round 1.2000 level in EURUSD and having a look below 0.7500 in AUDUSD. Cable has been sent spinning into the abyss by the latest weak UK GDP data (December short sterling futures have priced out some 19 bps of Bank of England hikes over the last couple of weeks) and USDSEK has gone nearly parabolic.  

Cue the Federal Open Market Committee meeting tonight. US bond yields have recently ramped up as the key coincident indicator of the recent USD rally, with the 2-year benchmark pushing on the 2.50% level and the 10-year recently interacting with the 3.00% level and 6-year high just above there. Fed rate expectations are poised finely on the “two or three more for 2018?” that is also reflected in the Fed’s dot plot forecasts for the rest of the year. 

A couple of forecasters are even looking for a hike at tonight’s meeting, a step/indication we doubt very much the Fed would like to make, even if Powell would like more flexibility in moving at non-press conference meetings (or possibly introducing press conferences at every meeting, as has been discussed). Beyond this December, the market remains sceptical that the Fed will reach its forecasts as curve expectations are largely flat beyond the December meeting.

The nature of the Fed’s statement this evening aside, the backdrop is devilishly difficult heading into the FOMC – is this a classic buy the rumour and sell the fact on the USD even if the Fed is relatively hawkish, or will the still-tremendous pile of USD speculative shorts feed an additional squeeze? As well, if US yields are the chief fuel, we have unprecedented shorts in US interest rate futures, providing a diametrically opposite pressure on the situation (i.e., a squeeze there would spell lower US yields) if interest rate traders don’t find sufficient hawkishness in tonight’s FOMC statement to extend their selling.

It is worth flagging the weak South Korean manufacturing PMI overnight, below 50 at 48.4 and suggesting weak demand from the Chinese mainland, which fits our “slowing China” thesis. Stay tuned.

USDJPY may prove the most sensitive pair to any decline in US yields on the back of tonight’s FOMC meeting – the pair has risen sharply from the ashes after a technical breakdown below 107.00 and any further upside through 110.00-25 and even the 61.8% level near 110.85. The closing level tonight and this Friday looks important as a status check on the immediate prospects for this USD rally.

FX Update focus on the greenback
 Source: Saxo Bank

The G-10 rundown

USD – the big dollar is charging hard into tonight’s FOMC meeting, where the bar is now much higher for the Fed to surprise on the hawkish side. Tonight’s and this week’s close are important for the next steps.

EUR – EURUSD is interacting with the key 1.2000 level and EURJPY doesn’t want to entirely give up and sell off after the recent bearish reversal. US rates will likely need to back off on a less hawkish Fed to see the 1.2000 area in EURUSD remaining sticky and the pair trying to make a stand here. Otherwise, the implications of a further sell-off point to 1.1500-1.1600.

JPY – the yen gets its lead from two sources – risk appetite and yields – if both head south, you have the most powerful support for a JPY rally, but that combination may be unlikely. We watch the 200-day moving average on the S&P 500, which is a glaringly obvious support point for the risk of a general risk meltdown that should prove supportive in JPY crosses, if less so in USDJPY (if the sell-off coincides with higher US yields as a key driver).

GBP – extreme weakness on the unwinding of Bank of England rate expectations over the last couple of weeks, it would seem that only a positive Brexit development or rate expectations declines elsewhere can bring back some support for the currency. The 1.3500-50 area is arguably the last support zone for the GBPUSD rally.

CHF – CHF is not cutting much of a profile as EURCHF doesn’t seem to want to challenge 1.2000, so USDCHF merely mimics EURUSD price action – though USDCHF focus could pick up if the 1.0000+ area resistance comes into view soon.

AUD - AUDUSD is having a look below the big range support at 0.7500 yesterday, but traders are perhaps reluctant to take it further until the FOMC meeting tonight. As we indicate above, the meeting is a key event risk for all USD pairs, and the 0.7500 area is now the line in the sand here.

CAD – the Bank of Canada’s Poloz was out with a long piece asking “Canada’s Economy and Household Debt: How Big Is the Problem?”. We would answer “very big!”. But Poloz’s conclusion is that the risks are manageable even as he outlines the concerns and suggests that the neutral rate for the Canadian economy is 2.50-3.50%, leaving plenty of room for tightening. Canadian short rates were a few basis points higher yesterday and CAD was supported in the crosses.

NZD – strong house price data, but a slightly disappointing employment change year-on-year leave the NZD in neutral for now around the 1.0700 area in AUDNZD and the more pivotal 0.7000 level in NZDUSD.

SEK – is there any period of more than two days when a Riksbank speaker is not out speaking? EURSEK has reached the top of its rising channel and USDSEK has gone completely parabolic – whenever the weakening move stops, it will likely be with an enormous reversal of short covering.

NOK – EURNOK is shying away from the top of the local range just above 9.70 – tomorrow’s Norges Bank is key for the next steps – rate expectations have actually held up relatively well after the dip in April on the weak CPI print.

Upcoming Economic Calendar Highlights (all times GMT)
07:15 – 08:00 – Eurozone Apr. Final Manufacturing PMI 
09:00 – Eurozone Mar. Unemployment Rate 
09:00 – Eurozone Q1 GDP Estimate 
12:00 – Sweden Riksbank Governor Ingves to speak 
12:15 – US Apr. ADP Employment Change 
14:30 – US Weekly Crude Oil / Product Inventories 
15:30 – ECB’s Weidmann to speak 
18:00 – US FOMC Rate Decision 

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 (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/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.