FX Update: Kiwi bump in the night. Euro remains heavy

Forex 4 minutes to read

John Hardy

Head of FX Strategy

Summary:  The market enters the day on a hopeful stance once again as riskier currencies across EM and in the G10 smalls are bid, especially the kiwi after the RBNZ failed to make any dovish tilt at all. Safe haven yields are higher and have taken the yen down a notch, but nothing is breaking just yet and the euro still looks very heavy here.


Trading interest

  • Stopped out of NZDUSD and abandoning USDMXN longs ahead of stops
  • Looking for levels to re-establish EURUSD shorts

The markets are in an almost ebullient mood this morning, with commodities in a more enthusiastic rally overnight, joining equities after another record close on Wall Street yesterday. In FX, the usual risk-on suspects are in rally mode, with G10 smalls all rising against the G3 currencies, and commodity-linked EMs having a banner day, with USDRUB all the way back below 63.00 at one point this morning. Completing the risk-on picture, safe haven bonds are under some pressure since yesterday, making the yen the weakest of the lot this morning, risking a EURJPY reversal after the recent break lower and taking USDJPY into the tough overhead resistance zone above 110.00

The Kiwi put in a sharp rally overnight after the RBNZ was a stick in the mud for kiwi bears, entirely failing to wax bearish and keeping a neutral outlook for now while saying that the central bank would have a minor role to play if the coronavirus fallout proves far worse than expected, as it would be up to fiscal stance to do the  heavy lifting. New Zealand 2-year rates ripped some 7 basis points higher overnight and AUDNZD spiked back lower – the tough part for bears there being that if we continue to recover from coronavirus fears,  the Australian dollar has likely more to gain than the kiwi from the sentiment bump (and vice versa, of course).

The Fed testimony yesterday was a dry and boring affair, with House Democrats not making much of a splash in politicizing Fed policy, with one Democratic representative, Tlaib, not even able to pronounce Bernanke’s name. The Senators on today’s banking panel may make more of a point – especially Warren, but we unlikely to see loud signals from Powell himself today.

The New Hampshire primaries went off far more orderly than did the Iowa caucuses and produced interesting takeaways, all of which were market- and Trump-benign for now. A few thoughts:

Sanders: despite headlines, 25-26% (with 87% reporting) is a weak result from a state that he should have performed best in after Vermont – he needed to stomp on the accelerator and this didn’t happen – underlines thesis that Sanders voters already know who they are – fewer undecideds likely to fall his way – his only way to nomination is via the rest of the vote being too split – next primaries – especially South Carolina on Feb 29 will flag whether he has a chance – he may have peaked.

Buttigieg: impressive at less than 2% behind Trump, but the challenge lies ahead in the South, where his polling has been far weaker.

Klobuchar: the centrist got the biggest jump relative to expectations at nearly 20% – absorbing Biden jump-ships –has the most momentum next to Buttigieg.

Warren: she looks finished at sub-10% and will likely have to fold soon – question is if most of her votes go to Sanders or elsewhere.

Biden:  Biden looks finished at sub-9%. Collapse even worse than I expected.

 

Conclusion and market reaction: the market feels it has nothing to fear as Sanders still safely under 30% in a state which should have seen one of his best results and the next contests may see his star fading somewhat. My assumption is that we could be moving to a Bloomberg or Klobuchar taking the primary and either of those versus Trump would be seen by the market as less fearsome difference for markets than a Sanders/Trump contest – though still a risk for certain sectors. Super Tuesday is the key for whether we are headed for an utterly divided party or more clarity.

Chart: EURUSD
EURUSD pushed down to the cycle lows without going beyond and is now consolidating a bit after a rather persistent run lower, including a six-day in a row stretch into Monday’s lows. The pair has room to consolidate up as high as 1.1000 without breaking the bearish case, but we would look to fade rallies ahead of there for a test of new lows. The next major chart point to the downside is the 1.05-1.0350 area visited back in early 2015 and then again in early 2017. Trump will undoubtedly be on the warpath soon on EUR weakness and could inject volatility at any time.

Source: Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1000 – Sweden Riksbank Press Conference
  • 1000 – Euro Zone Dec. Industrial Production
  • 1330 – US Fed’s Harker (Voter) to Speak
  • 1500 – Fed Chair Powell to Testify before Senate
  • 1910 – New Zealand RBNZ Governor Orr before Parliamentary panel
  • 0001 – UK Jan. RICS House Price Balance
Disclaimer

Saxo Capital Markets (Australia) Pty Ltd 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 Combined 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.

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)

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) Pty Ltd 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 and Product Disclosure Statement 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. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. 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.

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.