FX Update: Fed’s Powell testimony, Trump impeachment hearings

Forex 6 minutes to read
Picture of John Hardy
John J. Hardy

Chief Macro Strategist

Summary:  Trump failed to provide any fresh impression on the status of US-China trade negotiations yesterday, the RBNZ shocked the market by failing to cut rates as expected, and investors can look forward to an interesting day ahead in Washington with US Fed Chair Powell testimony and the first Trump impeachment hearings.


Trump’s speech yesterday before the New York Economic Club was short on policy details and very long on self-promotion and grievances against the Democrats. On US-China trade negotiations, Trump merely indicated that a trade deal is possible but that tariffs would be raised if no deal was struck.

The RBNZ shocked us and the consensus by failing to cut rates another 25 basis points, keeping the rate at 1.00% and spiking short NZ rates higher – to the tune of 15 basis points for the 2-year rate. The RNBZ wants to see the effects of the rate cuts in the bag before signaling more easing. Governor Orr said there was no intention to surprise the market and teased that the RBNZ will release a framework for alternative monetary policy approaches early next year. The market took this as a signal perhaps that the RBNZ would prefer to stay away from ZIRP. The market has perhaps overreacted relative to Orr’s intention, but this move has scared away the bears for the moment.

Later today, the first of Trump’s impeachment hearings is set to take place, as the top US envoy to Ukraine, William Taylor and Deputy Assistant Secretary of State George Kent are set to testify, starting at 1000 Washington time, or 1500 GMT. The partisan coverage in the news media is so rife that it is impossible to get a sense of how serious the charges are against President Trump in the general public’s eye even if the objective facts point to an impeachable offense if the charges are proven true. The issue will prove a slow-burn one as hearing progress today and Friday and in coming weeks as popular polls are tracked as well as the odds of a shift in the Senate Republican support of Trump, as only the Senate can remove a president, even an impeached one. This becomes a market moving event if Senate support for Trump wobbles.

A bit later in Washington, US Fed Chair Powell will put in an appearance before the Joint economic committee. Recent US economic data has been sufficiently resilient to keep the message at wait-and-see on the economy and market expectations for a December rate cut are moving toward nil, as the market is taking this after all as a “mid-cycle adjustment”. But the balance sheet discussion and congressional questioning into the Fed’s stance on its balance sheet could prove far more interesting, especially on any stronger indication from Powell that most Fed members expect a very limited time horizon of reserve building with the $60 billion a month of Treasury purchases, that will only continue until reserves are at a specific level. This might prove more hawkish than the market expects.

Chart: NZDUSD
Pity the kiwi trader as NZDUSD recently saw a very nice upside-down head and shoulders formation and a neckline break attempt that failed badly, but then bears have since been caught out here by the RBNZ suddenly waxing cautious on the need for further easing, which spike NZ short yields back higher and boosted the kiwi sharply higher. The 0.6425-50 area remains relevant to the upside if this rally holds and the USD strength fades again. Bears need to see this spike back higher quickly erased.

13_11_2019_JJH_Update_01
Source: Saxo Group

The G-10 rundown

USD – the greenback generally supported heading into today’s important Fed Powell testimony if he surprises on the balance sheet discussion. Otherwise, waiting for US-China trade deal status to ignite bigger trading ranges for USD pairs.

EUR – Yesterday’s ZEW survey suggests a stabilizing outlook for Germany while the current situation measures remained pegged near the multi-year cycle low.

JPY – yields have stabilized a bit overnight and offered the yen a boost, and the currency was already a bit resilient on Japanese long yields rising sharply lately, though much of yesterday’s rally was wiped out overnight – are yields at an inflection point a burning question for currencies.

GBP – sterling remains supported despite not terribly supportive data yesterday as the most recent data point – the October jobless claims, jumped 33k, matching the highest level in over eight years, while the September employment change was far less bad than expected at -58k. The run to new lows in EURGBP has been a cautious affair and hasn’t yet sparked fresh momentum.

CHF – Wolfstreet.com covers the SNB’s crazy accumulation of equities, to the tune of $100 billion – what this means for CHF is not directly discernible, but reserves would go up in smoke in a bad equity correction.

AUD – the latest Australia employment data up tonight and the most important release for the currency at the moment, due to the RBA’s focus.

CAD – the USDCAD pivoted higher, but isn’t exactly setting the world on fire as we await US-China trade deal news an relative economic developments, with the Bank of Canada inclined toward a precautionary cut to edge the BoC rate back slightly below the Fed rate if the next rounds of Canadian data are weak.

NZD – a big shock to the market overnight that could keep NZD rather bid in the crosses, especially in AUNZD if the AU employment data comes in weak.

SEK – awaiting the CPI this morning, but not seeing it as a major catalyst as the Riksbank is determined to edge away from negative rates – SEK needs fiscal stimulus in Sweden and a firmer Euro to put in a more determined show of strength than we saw recently.

NOK – Norway’s GDP nothing write home about as the mainland GDP slightly underperformed expectations at +0.7% QoQ  - EURNOK still in limbo after failing to punch down through 10.05.

Today’s Economic Calendar Highlights (all times GMT)

  • 0830 – Sweden Oct. CPI
  • 0930 – UK Oct. CPI
  • 1000 – Euro Zone Sep. Industrial Production
  • 1330 – US Oct. CPI
  • 1500 – US Congress Impeachment Hearings
  • 1600 – US Fed Chair Powell to Address Congressional Committee
  • 1910 – New Zealand RBNZ Governor Orr
  • 2350 – Japan Q3 GDP Estimate
  • 0030 – Australia Oct. Employment Change

Quarterly Outlook 2024 Q4

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

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

Disclaimer

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)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

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.