FX Update: EU focus intensifies, risk sentiment rolling over FX Update: EU focus intensifies, risk sentiment rolling over FX Update: EU focus intensifies, risk sentiment rolling over

FX Update: EU focus intensifies, risk sentiment rolling over

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The total, historic wipeout in oil prices yesterday saw clear if still rather restrained fallout in oil-linked currencies. We see signs that risk sentiment is rolling over again, with earnings season and EU existential risks high on the menu of possible proximate causes for fresh volatility. The euro is offered ahead of the critical Thursday EU Council meeting.

Please tune into today’s Saxo Market Call podcast, in which we discussed the drivers of negative crude oil prices, signs that risk sentiment is rolling over, and the intensifying focus on the existential EU .

In yesterday’s FX Update, I waxed rather big picture on the laundry list of potential issues that could sustain high FX volatility and even drive it back to the March highs. The most clear and present danger this week is the EU Council video summit coming up on Thursday, and the euro is rather offered ahead of that meeting as the market frets an unsatisfactory outcome for all parties and the tail risk of a collapse in talks and an immediate full tilt into a new existential EU crisis – one with far higher stakes this time around. Merkel was out yesterday talking up novel new bonds issued by the EU commission and backed by EU budget revenues and sent strong signals on the desirability of solidarity, but Reuters reported that participants in a CDU leadership conference said Merkel stated that mutual bonds are not a path forward for the EU.


Elsewhere, Spain’s deputy prime minister Calviño proposed a €1.5 trillion package of “grants” to member countries, not loans – that could be financed by perpetual debt issued by the EU and with allocation based on the magnitude of the fall in GDP, rather than the absolute size of the economy. It looks and quacks like a mutual bond although there may be enough wiggle room in the definition for Germany and the other anti-mutualization countries to avoid calling it that. Regardless, the stakes are high and we will look at the sense of political solidarity and signaling at this summit as much as the technicals of any eventual deal.


Below we have a look at EURJPY, our favourite instrument for measuring EU existential risks, or the lack thereof, feeding into the single currency.


EURJPY continues to be the preferred focus for any EU existential strains worsening from here. The base case scenario outlined by our Christopher Dembik could yet see the euro under further pressure here if the takeaway from this Thursday’s meeting is one of a nervous détente and a kicking of the can down the road. The worst case would be a dramatic Italian or joint Italian/Spanish “walkout” – or the video summit equivalent – on a failure to get on the same page. For EURJPY, below the 116.00 area there are no real chart points until down in the 110 area, with the lowest weekly close since the advent of the BoJ’s QQE near 111.10 from 2016.

Source: Saxo Group

The G-10 rundown

USD – the USD pulling higher as risk sentiment rolling over – no major surprise there. Strains in more fragile EM also a bit more pronounced, with USDZAR poking at the cycle highs.

EUR – the euro looking vulnerable against the usual JPY, CHF and USD trio ahead of Thursday’s meeting, but weakness not particularly “isolated” yet.

JPY – the yen picking up a bid as risk sentiment sours and safe haven bonds are bid. Our chief focus on EURJPY at the moment, but the USDJPY benchmark also interesting for relative strength of those two currencies.

GBP – sterling stumbling here and not taking much heart from signs of peaking Covid19 toll and parliament getting back to work. The currency could be in for some consolidation to the weak side if risk sentiment is rolling over again.

CHF – the grind lower in EURCHF is glacial as SNB leans against CHF upside.

AUD – the Aussie at risk from weak commodity prices, though iron ore has been a notable hold out – still, the Aussie mining giants stumbled badly overnight and may be time for significant consolidation in AUDUSD and AUDJPY.

CAD – the pressure from the oil wipeout mounts – surprised USDCAD isn’t much higher as a test of the 1.4600+ top is the default scenario here assuming continued pressure on forward oil market curve and risk sentiment.

NZD – NZDUSD rolling over with risk sentiment and looks ready to probe lower again – next pivots are 0.5922 and then 0.5844, but eyeing more like 0.5600 or 0.5500 eventually on a solid consolidation in equity markets.

SEK – someone pressed the pause button in EURSEK – interested to see if the upside comes to life on a rout in risk appetite and how the market would treat a proper EU existential crisis. Recall that during the 2010-12 EU sovereign debt crisis, SEK was flying high as a safe haven. The market justifiably sees things differently this time around (cratering domestic economy, cratering external economy for its export-dependent economy, etc.)

NOK – EURNOK under upside pressure as Brent crude selling off steeply – and not just in the front month. New lows in Brent in the contracts out beyond perhaps September (i.e., lower oil prices for longer, not just for now) could see EURNOK pulling well above local 11.50 pivot area.

Economic Calendar Highlights (times GMT)

  • 0900 – Germany Apr. ZEW Survey
  • 1400 – US Mar. Existing Home Sales
  • 0130 – Australia Mar. Retail Sales

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 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
  • 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
  • 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
  • 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

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.