FX Update: Market celebrates US-China trade headlines FX Update: Market celebrates US-China trade headlines FX Update: Market celebrates US-China trade headlines

FX Update: Market celebrates US-China trade headlines

Forex 6 minutes to read
Picture of John Hardy
John Hardy

Head of FX Strategy

Summary:  The market is celebrating an apparent breakthrough in US-China trade talks, but may have thoroughly priced in the news at this point, suggesting that an extension higher from here may run into resistance fairly soon. The smaller currencies in the G10 and EM currencies are having a field day on the news.

All was relatively quiet this morning until the news broke from Chinese official source that the US and China have an agreement in principle to lift trade tariffs as a trade deal progresses, though we have few details and no time or place for the signing. Markets liked the fact that this news emerged from the Chinese side and ran with it nonetheless, as US equity market futures rushed to an all time high, and the USD and JPY eased lower. It seems there is still plenty of room for trade talks to break down between now and what is will likely prove a very delayed date for the signing of whatever deal, if any, is reached. USDCNY traded to a new local low this morning and was below 6.98 as of this writing.

Before the US-China trade deal news broke this morning, the JPY was notably firmer overnight in the wake of a weak 10-year JGB auction that saw yields spiking higher all the way to -8 basis points, reasonably within reach of zero. The ongoing sense that the Bank of Japan is stepping away from the long end of the curve and the sudden outperformance of Japanese yields over the last couple of sessions rather interesting, but quickly washed away in all of the knee-jerk reaction to the trade deal news. Worth tracking this story down the road, however, and the BoJ’s Kuroda is adding to the chorus in favour of more fiscal stimulus.

Interesting to watch the indecision in AUDUSD over the last few sessions. While the hopes that a US-China détente on trade would clearly be good news for Australia, the short end of the Australian yield curve, as the market still sees the RBA remaining low to lower and failing to spark much reactivity in FX, although we are reasonable off the lows here and even more so in a cross like AUDJPY. Still, isn’t the latest news about as good as it gets on trade? To get AUD pulling higher across the board and reasonably beyond 0.70-0.7100 here, we’ll likely need a sense that the economy is on the mend Down Under and for key commodity prices to rise again.

Source: Saxo Group

The G-10 rundown

USD – the G3 currencies all weak as the market in a celebratory mood on this latest move. We’re a bit uncertain how much more the market can wring out of the US-China news, but certainly not willing to stand in the way.

EUR – EURUSD thrown a rope just as it was poking to new local lows this morning by the US-China trade news, but the single currency looks weak elsewhere – note the action in EURAUD – breaking down into an interesting area here.

JPY – again, we note the interesting modest rally attempt overnight that was independent of other influences before the US-China trade deal news reversed the move. If long US treasuries sustain a further rise, JPY likely to remain under pressure.

GBP – No easy way to deliver a message on the policy outlook in today’s Bank of England inflation report – UK recession incoming, but great hopes for a post-Brexit rebound. Sterling sideways.

CHF – the franc seems inert relative to the EUR despite this morning’s news. Is this a sign that the euro is becoming popular as a funding currency, turning past EURCHF correlations a bit on their head?

AUD – the Aussie absorbing the good news on trade, and another strong Trade Balance overnight reminds of the remarkable shift in recent years. Hmm, which to outperform, EURAUD downside or AUDUSD upside?

CAD – The US-China news this morning came just as USDCAD confronting key 1.3200 area resistance. Whether the positive mood on today’s headlines sustains and tomorrow’s Canada jobs report the deciding factors for next steps.

NZD – weaker wage and employment data this week still the excuse for seeing NZD lower versus AUD, though rate spread development between the two countries have been modest and are merely in the middle of the two-month range. Watching the range high here at 1.0840 in AUDNZD.

SEK – housing prices rose again for the year – and a large budget surplus reported for October – time to spend some of that money, Sweden. EURSEK posting new local lows, but a bigger level just ahead here at 10.61-60.

NOK – EURNOK probing new local lows and the risk melt-up should support NOK at the margin as NOK longs have to lean against seasonality headwinds. More profound reversal needs to see the pair take out 10.05-00.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1200 – UK Nov. Bank of England Super Thursday
  • 1230 – UK BoE’s Carney Press Conference
  • 1330 – US Weekly Initial Jobless Claims
  • 1530 – US Weekly Natural Gas Storage
  • 2000 – US Sep. Consumer Credit


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.