FX Update: Looking for FX themes beyond risk-on, risk-off

Forex 3 minutes to read

John Hardy

Head of FX Strategy

Summary:  Today we look for interesting developments in this market outside of the broader tendency for currencies to trade in knee-jerk reaction to risk-on, risk-off developments. We note in particularly the two-way risks for the euro from here, as well as interesting sterling strength and the difference in a CAD versus a NOK if oil prices are bottoming here.


A brief update today as today I wanted to focus on pulling out a few prominent developments beyond the tendency for many FX pairs to correlate with the risk-on, risk-off swings in equity markets. Of course, the key overriding question remains the same here – whether the risk deleveraging has completed its course for now, and if not, which currencies will be hardest hit by a further deleveraging – but still, there are a few developments that are providing a signal outside of the usual correlations in G10 FX.

Watch out for the US weekly initial jobless claims data today – expected at 3.7 million according to Bloomberg consensus. This data is far more accurate and timely than tomorrow’s Nonfarm Payrolls Change for March, as the latter includes all manner of statistical assumptions because not all of the real-time figures are available at the time of the data release. For perspective, and as we mentioned in today’s Saxo Market Call podcast, if the US economy loses even half of 47 million jobs that the St. Louis Fed’s Bullard said are at risk, the unemployment rate in the US will rise to far beyond the worst-since-the-Great-Depression level of 10.8% from 1982.

Oil currencies – CAD vs. NOK: a peppy bounce in crude oil this morning on the news that China would like to fill up its strategic reserves. Spot prices on the ground for many crude grades have reached absurd levels that are a mere fraction of the major futures prices and the question looms whether we have reached some sort of absolute bottom in oil prices. Well, that ultimate low has to be close, because at these prices, operators need to shut in production as fast as they can. On the FX side, we would suggest that NOK is farther along in adjusting to the oil shock than CAD and that the latter can continue to suffer even if oil prices stabilize from here, on the private debt bubble angle in Canada and the likely need for the Bank of Canada to go very big in keeping the Canadian banking system operational from here and likely loading up a lot of the private debt onto the public balance sheet (rather than allowing massive defaults.). On that note, we still think USDCAD upside risks are a prominent.

EURJPY and EURSEK – we watch both of these from a technical angle, assuming that JPY outperforms in any further deleveraging environment, and with the added twist that EU existential risks are afloat here, even if the market consensus isn’t particularly concerned. But we are in a narrow window of time in which the EU simpæly must show solidarity and, however “fudging” the approach, must move toward mutual debt . EURSEK is rather different in its reaction patterns to the policy response in the EU– it could actually go higher in a general risk deleveraging extension and on concerns for the Swedish economy from an even weaker EU outlook if EU leaders continue to fiddle, but SEK should outperform strongly the euro if the EU takes the steps towards a more common fiscal approach that bolsters the outlook for the EU.

GBP – very impressed with the recent stability and long sterling exposure a theme worth investigating – particularly against the Euro – the UK policymakers are ready to bring whatever support is necessary after the misery of the post Brexit referendum years. This whole Covid19 crisis caught the UK at such an odd time – just in the middle of a huge upswing in confidence and fresh capital flows coming back onshore after the currency had been severely discounted.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – US Weekly Initial Jobless Claims
  • 1230 – US Jan. Trade Balance
  • 1400 – US Feb. Factory Orders
  • 1430 – US Weekly Natural Gas Storage Change
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