FX Update: Tactical do or die for USD bears over next few sessions

FX Update: Tactical do or die for USD bears over next few sessions

Forex 5 minutes to read
Picture of John Hardy
John J. Hardy

Chief Macro Strategist

Summary:  key USD pairs are close to key levels, or even beyond in the case of AUDUSD, making life difficult for USD bears, even if the broader picture is not entirely decisive and may not be until we have a look at the US jobs numbers this Friday. Emerging market currencies have rebounded smartly on fading geopolitical fears and a strong CNY.


The market is rebounding from the risk-off move inspired by the US-Iran showdown over the US assassination (or targeted killing, depending on your news source/views) of the Iranian military leader Soleimani. The move across FX largely fit with this overall resumption of risk on, with a couple of notable exceptions, especially the struggling AUD, which is at critical levels here versus the USD and JPY, likely as confidence has been heavily impacted by Australia’s bushfires and perhaps has many in the market fearing that RBA rate cuts could yet yield to quantitative easing, though the market consensus is for a terminal rate of 0.50% through the end of this year. A move in AUDUSD below 0.6900, as we discuss in the chart segment below, spells trouble for bulls in that pair positioning long after the break above that level into year-end.

We posed the question yesterday whether this US dollar is finally for turning lower, and the answer is so far “it depends what you are looking at” as EM trades are as hot as they have ever been on as-good-as-it-gets financial conditions encouraging a reach for yield. Confidence in EM trades also likely bolstered by the USDCNY moving sharply lower overnight through 6.95 and therefore through the 200-day moving average for the first time since last May. One note of caution on the EM front: even as EURPLN notches new lows for the cycle, savers in PLN are now suffering some of the worst negative real rates out there as Poland just printed a 3.4% inflation rate for December, the highest level since 2012. And look over at USDMXN, which is pushing on the lows despite Mexico in recession (though the real rates picture here couldn’t be more different from Poland as Mexico features a 7.25% policy rate with inflation running around 3.0% while Poland has a 1.5% policy rate and now inflation running above 3.0%)

Chart: AUDUSD
The AUD is the weakest of the G10 currencies to start the year as confidence and growth levels are likely to be impacted in the near term by the terrible spate of bushfires, though a fiscal impulse to deal with the aftermath could provide some offset down the road. For now, traders focusing on the major AUDUSD cross will struggle to maintain a bullish view on a close below 0.6900, as the 0.6900-35 area was a key level on the way up and the 0.6900 area is now the 200-day moving average, a technically prominent MA several times in 2019.

07_01_2020_JJH_Update_01
Source: Saxo Group

The G-10 rundown

USD – the US dollar is not playing ball with the bears here – a further leg higher of about 0.5% depending on the cross suggests we are shifting back to the perma-limbo that plagued much of 2019. A better status check on the greenback on the weekly close and the other side of the US jobs numbers this Friday.

EUR – as the market bounces back from geopolitical concerns, the euro fails to shine. Some have argued that the euro has become the funding currency of choice, will be watching how the single currency correlates with further bouts of risk-off this year to test that hypothesis.

JPY – as markets recoil from the geopolitically inspired risk-off move, the JPY weakens quickly – a bit more upside in yields and general risk appetite and USDJPY likely to reverse the recent sell-off and interesting as well to note the classic risk barometer AUDJPY failing yet to take out the 200-day moving average.

GBP – sterling firming a bit after yesterday’s December UK Services PMI impressively rebounded to just above 50 despite all of the supposed Brexit uncertainty and UK general election. Parliament sitting today and will set the course for a formal withdrawal from the EU at the end of this month, while March 11 has been set as the date for delivery of the next budget.

CHF – the franc marching to the beat of its own drummer as the relief from risk-off trades not see here and EURCHF remains heavy near the cycle lows.

AUD – the AUDUSD struggling in the last zone of support and right on the 200-day moving average this morning. The pair needs to find a bid sooner rather than later to argue for .

CAD – CAD is looking overambitious here as oil prices have pulled back, let’s see if the market treachery that was ever present in 2019 and looks to be hitting the AUDUSD bulls also strikes here for recent USDCAD sellers..

NZD – the longer term upside prospects for AUDNZD we mentioned yesterday have turned into downside tactical price action, though AU-NZ 2-year rate spreads are over 10 basis points off the lows. Would expect RBNZ to be on the warpath below 1.0300 if the selling continues.

SEK – we like EURSEK lower as long as the price action remains below 10.60/65, but patience may be required as we need stronger fundamental story to see more conviction in SEK longs – especially a change in the fiscal outlook for Sweden.

NOK – EURNOK able to press lower despite the recoil in oil prices as risk appetite rebounds, but the pair is looking a bit oversold without fresh catalysts.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1330 – US Nov. Trade Balance
  • 1330 – Canada Nov. Trade Balance
  • 1500 – US Dec. ISM Non-manufacturing
  • 1500 – Canada Dec. Ivey PMI
  • 1600 – New Zealand Dec. QV House Prices
  • 0030 – Australia Nov. Building Approvals

 

 

 

Quarterly Outlook

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

    Chief Investment Strategist

    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

    Chief Investment Strategist

    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.