FX Update: Fed panics, market not impressed FX Update: Fed panics, market not impressed FX Update: Fed panics, market not impressed

FX Update: Fed panics, market not impressed

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The market looked in sad shape yesterday after the panic 50-basis point rate cut from the Fed was unable to sustain a market rally, but the market is having a second try at bouncing back overnight, perhaps in part due to US political developments. The Fed is rapidly depleting its ammunition in any case and team Trump will soon have to take over.

Trading interest

  • Long (Expiry Nov 6 – days after election) 1.1200 EURUSD calls.
  • Taking profit on USDJPY shorts early – here below 107.50 – after 110.00+ entry

A great discussion on this morning’s Saxo Market Call podcast, in which we discuss yesterday’s panicky move from the Fed in cutting rates by 50 basis points and what we are looking for from here.

We saw a bit of a revival in animal spirits overnight, a development I’m reluctant to build a narrative around, but it could be the market second guessing the sell-off in the wake of the Fed’s cut yesterday, or it could be a sentiment boost from Sanders seeing poor results in yesterday’s Super Tuesday elections, which suggest Sanders has no chance of scoring an outright majority in the primaries and that Biden has a chance of doing so now, especially if Bloomberg bows out and endorses him. We see Biden as the weakest possible candidate to face Trump, but the market and the US dollar are far less fearful of a Biden outcome than a Sanders one.   

Today we have a Bank of Canada meeting and very difficult to see why the bank doesn’t cut 50 basis points today, with markets leaning that way as well, though not 100% there. We add a USDCAD call trade to the Trading Interest section above with the assumption that Poloz brings a strong dovish message today and notches the caution level significantly higher. The Bank of Canada the last bank with more room to cut than the Fed besides Norges Bank (which is hamstrung by a collapsing currency from providing more easing).

Speaking of being hamstrung, most other central banks have nothing more to offer here in terms of policy accommodation as the future policy mix will have to mean fiscal stimulus –. In an economy affected by widespread shutdown in economic activity and decision-making, the stimulus will have to take the form of credit forbearance and helicopter money, and we fear that Europe will be the slowest to pick up the slack, whereas Trump’s desperation is already palpable and every downtick lower in the major equity indices brings forward the next attempt to empower the Treasury to make unprecedented moves. Initially, fiscal moves are likely currency positive, with effects on real rates and inflation only a secondary consideration (but eventually the dominant one) down the road.

The AUDUSD has managed a respectable rally from the fresh lows for the cycle after a solid Q4 GDP print overnight (a secondary consideration given developments since then). It appears that China is increasingly turning to work while the virus outbreak points to the risk that the EU and especially the US are at increasing risk of shutting down on quarantining behavior. This could lead to a surprising resilience in AUD, particularly given rather heavy short speculative positioning. We’re not calling a reversal here, but have an open mind for one as Australia-US rate spreads have rocketed from a negative 70 basis points to start the year to only about negative 20 basis points now. Still, we would want to see the price action pulling sharply above 0.6700 again to build a case for a structural turn here in the pair.

Source: Saxo Group

Today’s G-10 rundown

USD – the Fed and Trump administration will eventually get this USD broadly weaker – looking for signs that it is working and the crush lower in rate spreads helps as Fed if force-marching to zero.

EUR – the euro staying relatively firm here as EURUSD deals with the major 1.1200 resistance that was in play yesterday. One bit of fundamental support is that the ECB has no real bullets left – further negative rates are no help and fiscal is the only answer, the risk being that EU officials prove painfully slow to act on the fiscal front.

JPY – the backdrop about as supportive as possible for JPY since yesterday – not terribly impressed with the action overnight and hence the profit-taking in our USDJPY short.

GBP – sterling rather offered again this morning, perhaps as the market sees the window for the BoE to reduce rates, since it does have a modicum of policy room to work with compared to the ECB. Technically watching the 200-day moving averages in both EURGBP and GBPUSD. Still like EURGBP lower eventually, with little visibility in short term. Maybe a level to establish optionality (long GBP) here.

CHF – EURCHF consolidated back as high as 1.0700. Downtrend feels tired after no major pickup in volatility over the market’s recent wild gyrations.

AUD – see the AUD chart above – if markets calm a bit here, it is fairly easy to string together a positive tactical narrative for AUD.

CAD – the Bank of Canada very likely to chop by fifty basis points today and wax very cautious on the impact from the coronavirus (also in Canada) and plunge in oil prices. May under-perform in the crosses, but if broader sentiments are lifted – USDCAD bulls looking in tactical trouble if USDCAD heads below 1.3300.

NZD – would expect AUD to outperform NZD in an attempt by markets to stabilize here, especially if the China sentiment continues to improve.

SEK – EURSEK looking lower again – but needs a bit of a comeback in global markets and fiscal news to shape up for a major attack through 10.50 to 10.40 in EURSEK

NOK – the krone needs a bullish reversal in crude oil and for global growth fears to fade to push the price action back lower through 10.25-20. Until then, NOK twisting in the breeze.

Upcoming Economic Calendar Highlights (all times GMT)

  • 0930 – UK Feb. Final Services PMI
  • 1315 – US Feb. ADP Employment Change
  • 1445 – US Feb. Final Markit Services PMI
  • 1500 – Canada Bank of Canada Rate Decision
  • 1500 – US Feb. ISM Non-manufacturing
  • 1900 – US Fed Beige Book

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.