FX FX FX

FX Update: ECB comments raise July ECB hike odds.

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Comments from ECB member Guindos this morning suggest that rate lift-off for the ECB could occur as soon as July, helping to boost the euro. That seemed to impress the market far more than the debate between the two contenders in the French presidential election run-off, as the odd continue to widen in favour of the incumbent Macron, which also supports the euro. Elsewhere, CAD jumps on a hot CPI number.


FX Trading focus: The euro gets a strong boost from ECB comments, CAD jumps

In my last couple of updates, my focus was on whether the euro is set to jump early next week once the hurdle of the French Presidential Election run-off this Sunday is behind us. We have seen signs this week that the EURCHF is front-running the election result as odds widen in favour of the incumbent Macro after a few weeks of nervousness on Le Pen’s chances that have likely suppressed EURCHF’s upside potential (upside pressure on EURCHF is supported by the massive widening of yield spreads in the euro’s favour since early this year). Last night’s debate and consensus view that Macron won it have done little to alter the odds for Sunday – perhaps marginally improving his likely margin of victory.

The euro rallied this morning due to comments from ECB member Guindos, who argued in favour of a July ECB rate hike if the data are supportive. This has short EU yields back at the highs of the cycle as the market sharply raises the odds (now strong favourable) that July sees a 25 basis point hike and with more tightening out the curve. The market is even pricing better than even odds that we see a positive ECB rate by year end. As the comments are from Guindos, an ECB member that has historically been relatively neutral on the dove-hawk spectrum, the comments carry perhaps a bit more weight than usual.

Chart: EURUSD
We recycle the EURUSD chart from yesterday, with today’s rally adding to the sense that the pair is trying to post a reversal after rejecting the price action below 1.0800 recently, carried higher today far more by ECB comments that are raising anticipation of more and earlier policy tightening this year. The sharp backfilling of the move after the price action was taken well above 1.0900 is a bit of a disappointment for the bulls here tactically. Assuming Macron is set for a solid victory in the run-off election for French president on Sunday, it will be interesting to see whether that event risk moving into the rear-view mirror helps unleash more euro buying early next week, and how broadly (for example, only a bit of EURCHF upside or also EURUSD, EURGBP, etc.). A solid confirmation of the bullish reversal would be a move and close solidly above 1.1000, while the zone up to pivotal 1.1185 area (major cycle low once revisited before the Ukraine war) needs retaking to suggest a more structural shift to a bullish stance. Besides this weekend’s political hurdle in France, the next major event risk is the May 4 FOMC meeting. Interesting to note that the March 16 FOMC meeting saw a EURUSD rally attempt even as Fed expectations were adjusted higher in the wake of that meeting.

Source: Saxo Group

CAD jolted higher by stronger than expected CPI. The Canada March inflation level rose more sharply than expected, with the headline CPI measure printing +1.4% month-on-month versus 0.9% expected, and the year-on-year CPI at +6.7% versus 6.1% expected. The “Core-Trim” year-on-year measure was likewise at a new multi-decade high of +4.7%. The Canadian dollar rose sharply on the data as the market priced in more tightening from the Bank of Canada, which is now almost fully priced to hike by 50 basis points at all of its next three meetings, with the policy rate tightening continuing to outpace the Fed and at nearly 3.0% by year end. As well, Canadian home prices rose at an 18.4% year-on-year clip in March, matching the fastest pace of house price appreciation for the cycle. Inevitably, the monster rise in Canadian yields will tame housing over the next 12 months, but this will add to the BoC’s sense of urgency. USDCAD could yet get stuck again in this sticky 1.2400-1.2500 area if the USD isn’t selling off more broadly, or at least until after the May 4 FOMC meeting, which many are likely waiting for before making a decision on USD direction.

NZ Q1 inflation comes in slightly below expectations although still at the highest in over 30 years, with the year-on-year headline CPI at 6.9% versus 7.1% expected and the quarter-on-quarter rise at +1.8% versus +2.0% expected. The NZD was marginally weaker after spiking lower, with AUDNZD trading just shy of the key 1.1000 at one point before retreating.

Table: FX Board of G10 and CNH trend evolution and strength.
CAD is rising to the top of the heap, while CNH weakness remains notable, and the CHF downside momentum risks picking up after the French Presidential election run-off this weekend.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Outside of CAD, the commodity “overlay” is not performing particularly well, as gold is on the verge of flipping to negative, silver is already trying to do so today. Note the big move in EURCNH and USDSEK having a look at flipping lower on the resurgence in SEK we noted yesterday.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – US Apr. Philadelphia Fed Survey
  • 1230 – US Weekly Initial Jobless Claims
  • 1300 – UK BoE’s Mann to speak
  • 1630 – UK BoE Governor Bailey to speak
  • 1700 – US Fed Chair Powell and ECB President Lagarde on IMF Panel
  • 2330 – Japan Mar. National CPI

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.