Euro perks up on anticipation of ECB shift Euro perks up on anticipation of ECB shift Euro perks up on anticipation of ECB shift

Euro perks up on anticipation of ECB shift

John Hardy

Head of FX Strategy

The euro is bid into 1.1800 this morning despite an ugly Germany Factory Order release for May showing that orders are flat following year-on-year after growth of as high as 10% in 2017. It’s a worrying advanced sign for the German export machine, but we’ll need a few more months data for a more solid indication of a slowdown.

The euro buoyancy has more to do with ECB noise, both from a Bloomberg article with ECB sources and from the ECB horse’s mouth (Praet) that next Thursday’s meeting will see discussion of when to wind down QE purchases, with a possible schedule to be declared at the meeting. The move to air this guidance from the ECB suggests the central bank is taking a hard line on Italy – and the euro is managing to rise even as Italian yield spreads have headed back in the wrong direction over the last couple of sessions, with the two-year Italian yield back up at 135 basis points this morning.

As well, Praet mentioned yesterday that the ECB sees inflation expectations as “increasingly consistent with our aim.” It has no doubt helped that EURUSD has corrected as much as a thousand pips from its highs earlier this year. 

Today the Turkish Central Bank will announce its interest rate decision at the last regularly scheduled meeting head of the June 24 election. The majority are looking for no change to the late liquidity window rate, though many are expecting another rate hike, so TRY faces a sentiment test either way and the overriding concern all along has been that President Erdogan risks interfering with policy, particularly after the election, after which he will assume expanded powers as a result of recent constitutional reforms.

The latest weak link in emerging markets is Brazil, where the chunky sell-off in the real is particularly remarkable given rather robust rally in risk appetite over the last couple of sessions and signs of EM relief elsewhere. A recent chaotic strike, overriding sense of political uncertainty and even calls for military intervention at a popular level have roiled the BRL exchange rate. Is the risk of a revolution afoot? 


USDJPY is at a key inflection point just as the US 10-year benchmark has crawled back to the key 3.00% area inflection point. Whether US yields are capped at the long end for the cycle is a critical question across markets, not least for EM, and also critical for whether USDJPY finds resistance in the 110.00-25 area.


The G-10 rundown

USD – is the market trying to revive the Goldilocks or “policy convergence” trade here? The latter is the idea that the Fed anticipation is fully priced for now and other central banks can play some catchup, all while risk appetite finds the unwinding of policy accommodation sufficiently benign to rally.

EUR – the euro has squeezed back higher, led by a whiplash rebound in EURJPY as the market is getting itself in a lather anticipating some new and more restrictive signal is anticipated from the ECB where none was expected before. 

JPY – the direction of global sovereign bond yields are the arbiter of the yen direction here, as strong risk appetite has weakened the yen, together with a jump in bond yields after the dip inspired by recent EU existential pain.

GBP – sterling is only higher at the moment versus the USD on the euro’s coattails and is nearing an important resistance zone in the 1.3500-1.3600 area in GBPUSD as EURGBP fibrillates in a tight range. 

CHF – the recovery in the euro is being felt acutely in EURCHF as the pair is suddenly back within reach of its 200-day moving average around 1.1650. Feels a bit uncomfortable looking for an aggressive extension higher unless we get a more supportive signal from Italian yield spreads to the core.

AUD – the AUDUSD rally has paused in the critical final resistance zone – hard to see a notable punch higher if we can’t get liftoff in Australian rate expectations or some other catalyst.

CAD – CAD tried to rally after a bearish USDCAD reversal, but the big supply builds in the weekly DoE report yesterday knocked oil prices sharply lower yesterday.

NZD – the kiwi keeping us guessing as AUDNZD is stuck in the range and NZDUSD mulls whether the 0.7060 area Fibo will hold or if a full test of the 200-day moving average up at 0.7125 is worth a stab.

SEK – SEK might firm further if the ECB is seen as making a shift in the hawkish direction as the market sees the Riksbank as a follower of the ECB’s lead

NOK – still prefer to look for a break lower in EURNOK to lead to 9.20-25, but seeing is believing after the long wait.

Upcoming Economic Calendar Highlights (all times GMT)

   • 1100 – Turkey Central Bank Decision
   • 1230 – Weekly Initial Jobless Claims
   • 1300 – Mexico May CPI
   • 1430 – US Weekly Natural Gas Storage
   • 1430 – Canada Bank of Canada Financial System Review


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.