FX Update: Risk rally drives weaker JPY, GBP bid returns FX Update: Risk rally drives weaker JPY, GBP bid returns FX Update: Risk rally drives weaker JPY, GBP bid returns

FX Update: Risk rally drives weaker JPY, GBP bid returns

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Risk appetite returned to the FX market overnight on news of Trump's willingness to meet his Chinese counterpart on the sidelines of the G20 meeting in late November, but whether or not this upbeat mood prevails for long remains to be seen.

Risk appetite has rallied hard since late yesterday as US President Trump announced his intention to meet Chinese leader Xi Jinping at the late November G20 meeting in Argentina. The USD and JPY have eased lower in response, but other interesting subplots have also emerged.

The transmission or contagion from the latest turbulence in equity markets has been weak into foreign exchange, so the dramatic relief rally overnight has likewise only driven modest mean reversion in many of the major currencies, with the USD back a bit weaker and JPY a bit more so. Today’s close will offer an important signal on whether risk sentiment will stabilise for now or take us into a very uncomfortable weekend. 

The most readily apparent driver of the relief rally was the news that Trump is open for a meeting with Xi on the sidelines of the G20 meeting in Argentina in late November. This has very little to do with the narrative linking the equity sell-off to the rise in the price of longer-term money and, if anything, a trade deal (we’re a long way from that in our view) might risk an even more aggressive move higher in US rates.

Yesterday’s Swedish CPI print prompted a sharp SEK rally as Sweden reported a core CPI of 2.5% for September versus 2.3% expected. With a policy rate of -0.5% and having committed to either a 25 basis point hike in December or February, the market suddenly realises that the hike will come at the sooner rather than the later date. 

SEK making a splash yesterday as the strong CPI report boosted rate expectations and has the market pricing in a December rate hike rather than a longer wait. This finally has EURSEK re-engaging lower after the promising start from the 10.69 area and the next step will be the watch for a break of the 10.25 area for potential all the way down into 10.10 to 10.00.

EURSEK. Source: Saxo Bank

The G-10 rundown

USD – the greenback trades indifferently here – pulled in too many directions. Positioning suggests weakness risk, but that is somewhat offset by its tendency to serve as a safe haven when risk deleveraging is most intense. But if risk appetite improves, do we then go back to watching US yields lift higher, therefore supporting USD strength?

EUR – Italian yield spreads remain elevated but not going anywhere as Italy shows all signs of continuing to pursue a showdown with the EU over its budget, as the parliament voted in favour of the expanded deficit for the 2019 budget. Next week could provide the next battery of headline risks.

JPY – the yen back to the weak side in kneejerk reaction to . But if yields head higher we get quickly back down to focusing on whether the BoJ is forced to indicate a policy shift as 10-year JGB’s trade up against the 15-basis point yield “cap”.

GBP – sterling is catching a bid again this morning and plenty more room for GBP strength if markets are generally stabilising and we get the positive Brexit headlines the market is gunning for next week. Note GBPCHF trading up at its 200-day moving average near 1.3100 and for perspective, consider that the 200-week moving average doesn’t come in until close to 1.3500.

CHF – as we note above, the franc’s recent weakness despite worse-than-wobbly risk appetite and EU existential stress sticks out like a sore thumb. EURCHF making an interesting go above the local pivot level of 1.1440 and eyeing the perhaps psychologically more important 1.1500 level.

AUD – with the firming CNY yesterday and massive rally in gold, would have expected a more robust response from AUD yesterday, though it did manage to entirely reverse the prior day’s losses in the case of AUDUSD, where we see the risk of a large short squeeze if risk appetite stabilises and the CNY maintains the floor.

CAD – USDCAD is easing back toward the 1.3000 pivot area after the recent chunky oil market correction. The chart is a mess. Next Friday, Canada reports home prices and on Friday, the September CPI.

NZD – next Wednesday’s Q3 CPI from New Zealand the next reason to pay attention to the kiwi in relative value terms as the AUDNZD pair has gone into hibernation.

SEK – a chunky SEK rally worth believing in as the strong CPI release yesterday jolted Swedish rate expectations higher as the Riksbank now seen as a lock to hike in December.

NOK – a more modest comeback for NOK relative to SEK on the NOKSEK breakout brushback and weaker oil prices, but still constructive on EURNOK downside potential.


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 https://www.home.saxo/en-au/legal/.

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 (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

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 www.home.saxo/en-au/about-us/awards

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.