background image background image background image

FX Update: Too much Brainard on the market’s brain?

Forex 4 minutes to read
Picture of John Hardy
John J. Hardy

Chief Macro Strategist

Summary:  If the action since last Friday has mostly to do with the shifting odds in favour of President Biden nominating Lael Brainard to serve as the next Fed Chair, then the market may be making too much fuss on what the shift from Powell would mean for Fed policy down the road. In any case, we are only wiser once the announcement is made, very likely inside the next week or two. In the meantime, the US October CPI release today is the next focus.


FX Trading focus: To much Brainard on the brain? US CPI, yields in focus.

In today’s Saxo Market Call podcast, I discuss the Bloomberg chart I also show below of USDJPY (inverted), gold and US Ultra T-bond futures, which all jumped to attention on Friday, first seemingly in reaction to a fairly strong US jobs report (a bit of a head-scratcher) but later the move was clearly accelerated by news that both Fed Chair Powell and potential nominee Lael Brainard were seen at the White House. The Bloomberg columnist John Authers does a great job of pointing out the market reaction to this development as well as arguing that it makes little sense and why he sees it as unlikely that Brainard will be nominated.

I would agree and underline that it will matter very little to nothing for the course of future Fed monetary policy if Brainard is chosen over Powell, but it will definitely mean that the Fed has a far more hawkish regulator at its helm, a very different approach from Powell (and might mean that anyway, as even if she is nominated to head the Fed, she will very likely receive a prominent new regulatory position and title under a second term at the Fed).

I really don’t know who Biden will choose, accepting Authers’ argument as logical, but having a hard time seeing why Biden wouldn’t take the opportunity to be seen as making Powell pay for the trading scandal that happened under his watch. Either way, we are likely to get a considerable one-off reaction to the nomination announcement once it is made, and if those market moves on Friday are linked to the potential for a Brainard nomination, they could very quickly reverse if the market decides that the course of Fed policy is unlikely to veer much from where it was before – likely in my book.

We also have today’s US October CPI release, where the bar may be high for a surprise to generate significant volatility unless the market is willing to roll back its anticipation of a possible Brainard nomination. A 0.8% or higher month-on-month headline print or especially a 0.5% or higher ex-food-and-energy print could have the market on tilt, driving the USD higher, yields higher, risk sentiment lower, etc…with the JPY caught somewhere in the crosswinds.

Chart: USDJPY (inverted) vs. gold and US T-bond futures.
The chart discussed above, where we watch today’s CPI release and the imminent news of who Biden will nominate to head the Fed next February for the effect on the US dollar, particularly USDJPY, and on US treasuries, with a big new sell-off in the last of these possible driving a consolidation in the recent strong rally in risk sentiment.

10_11_2021_JJH_Update_01
Source: Bloomberg

Table: FX Board of G10 and CNH trend evolution and strength
The US dollar and JPY stuck effectively in neutral here waiting for next steps, which feel like they should come soon in the US dollar’s case as discussed above. Note some of the negative momentum in the G10 smalls, including NZD, SEK and especially AUD.

10_11_2021_JJH_Update_02
Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
Lots of yellow in the “Age” category as we se the AUD and suddenly NZD flipping to a negative trend in places. The NZDUSD chart in particularly looks set for a test lower if the USD puts up a further fight here – it is almost ready to flip and the 200-day moving average has been a key focus on the chart. Also watching EURSEK for a squeeze risk if not yet a trend change as I suspect stops may be lined up near and just above 10.00.

10_11_2021_JJH_Update_03
Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1330 – US Weekly Initial Jobless Claims
  • 1330 – US Oct. CPI
  • 1400 – UK BoE’s Tenreyro to speak
  • 1530 – US Weekly DoE Crude Oil and Product Inventories
  • 1700 – US Weekly Natural Gas Storage Change
  • 0001 – UK Oct. RICS House Price Balance
  • 0030 – Australia Oct. Employment Change / Unemployment Rate

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

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.