FX Update: Choppy waters until Jackson Hole on Friday? FX Update: Choppy waters until Jackson Hole on Friday? FX Update: Choppy waters until Jackson Hole on Friday?

FX Update: Choppy waters until Jackson Hole on Friday?

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  EURUSD swooned well through parity yesterday, posting a new low this morning before surprisingly resilient August preliminary PMIs helped to stabilize risk sentiment in Europe this morning. After a powerful strengthening move for the US dollar on a repricing of the US yield curve, we may risk a bit of consolidation and cat-and-mouse until the Friday main event(s) of the US PCE inflation release and Fed Chair Powell speech.


FX Trading focus: Treading water until Friday?

 Seeing some signs of consolidation in recent trends in places this morning as we see EURSEK rolling over after its steady recent ascent and EURCHF jerking back higher from new cycle lows on a stronger than expected set of preliminary August PMI’s, with Germany’s manufacturing survey at a solid 49.8, a nudge higher from the July level and far better than the 48.0 expected. The Germany Services survey was weaker than expected at 48.2 but is not the focus. For the Eurozone-wide survey, the manufacturing survey was likewise steady at 49.7 vs. 49.8 in July and vs. 49.0 expected. The resilient data didn’t suit the market action as EURUSD had plunged to new lows below parity yesterday and was posting fresh lows this morning just ahead of the releases. Given the scale and speed of the slide from above 1.0300 in EURUSD just over a week ago, it’s tough to argue that the USD will continue to move in a straight move higher as we await Fed Chair Powell’s speech at Jackson Hole. The title of the Jackson Hole conference is Reassessing Constraints on the Economy and Policy, which between the lines suggests the Fed is set to assess the reasons why it was so wrong and why it policy has little ability to affect the (a slightly more cryptic and academic version of the BoE’s recent throwing of the hands in the air at its own irrelevance, in other words).

Chart: GBPUSD
A rather steep pace of declines for GBPUSD since the pair peaked out above 1.2250 in the wake of the late July FOMC meeting and then on the retest higher after the slightly softer US July CPI release on August 10. Cable managed to test new lows for the cycle this morning below 1.0760 before rebounding slightly and UK rates are off to the races again to new highs for the cycle after a firmer than expected preliminary August Services PMI suggesting moderate expansion. If the US dollar treads water for a couple of sessions ahead of Jackson Hole, there may be some room for the price action to consolidate – certainly a tough area to initiate a USD long position here below 1.1800 in risk/reward terms. Eventually looking for the pair to challenge lower still until either Europe finds some sudden source of relief on its energy emergency or the market begins to price the Fed to ease again (too early for the latter).

Source: Saxo Group

Elsewhere, the USDCNH rally extended to new highs this morning as the pair trades passively to USD direction. USDJPY has not yest posted new highs for the cycle as the comeback in longer US yields has been a relatively sluggish affair and we are still near 50 basis points below the cycle high in the US 10-year treasury yield benchmark of 3.50%, a challenge of which might be required to set USDJPY on tilt for 140+ and an eventual showdown over the BoJ’s commitment to its yield-curve-control policy – but keeping an eye out nonetheless as the market absorbs whatever message the Fed delivers this week.

Table: FX Board of G10 and CNH trend evolution and strength.
The USD positive reading intensifying here – mostly at the expense of EUR, GBP and SEK, but keeping an eye on the traditionally risk-correlated FX if sentiment continues to dive. Note the NOK riding above the fray – one of its most remarkable positive divergences from a downbeat set of European complexes and obviously driven by record gas prices.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
EURGBP flipped to positive on Friday, only to turn back lower yesterday on a sharp reversal – status looks confusing there. Elsewhere, watching AUDCAD for downside follow through while also watching whether USDCAD can break notably above the range or if it remains in the ugly choppy, rising channel of the last 12+ months (the closing price yesterday was the second-highest since late 2020). Look at NOKSEK at a reading of +7.1 – strongest trend within G10.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1100 – ECB's Panetta to speak
  • 1345 – US Aug. Flash Manufacturing and Services PMI
  • 1400 – US Aug. Richmond Fed Manufacturing
  • 1400 – Eurozone Aug. Flash Consumer Confidence
  • 1400 – US Jul. New Home Sales
  • 2300 – US Fed’s Kashkari (non-voter) to speak
Disclaimer

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
Australia

Contact Saxo

Select region

Australia
Australia

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.