FX Update: Markets on edge over course of US-China relationship

The G-10 rundown

USD – risk appetite is on the rocks and a move from Trump on the more dramatic end of the possible spectrum could see the USD sharply higher against the currencies that were strongest against the greenback of late, while USDJPY could prove a different story and head lower.

EUR – see yesterday’s FX Update for a breakdown of our impression of the EU recovery package announcement. For now, we take the market’s enthusiasm even if we have concerns on the eventual pushback. As long as EURUSD is north of 1.1000 and EURCHF 1.0625-50, a new euro rally is afoot. Wondering at the margin whether any new episode of risk off limits EUR strength to the crosses outside of the G3.

JPY – it makes some sense for JPY volatility to remain muted, as there is no real policy differentiation across the major currencies now, but on the other hand, the JPY will likely pivot stronger on any new bout of safe haven seeking – particularly if safe haven yields blast to new lows.

GBP – sterling dribbling lower and EURGBP has slipped above the 0.9000 recent pivot level this morning. EU Trade Commissioner Phil Hogan suggested yesterday to the European Parliament’s trade committee that perhaps the UK has concluded there is no scope for a deal – but we’ll have a better sense of the temperature of the relationship with talks set to resume next week.

CHF – EURCHF the barometer for the market’s enthusiasm for EU recovery hopes and outlook – theoretical room to at least 1.0800 as next major chart point – downside pivot zone at 1.0650-25.

AUD – AUDUSD looking surprisingly buoyant given the unease on US-China tensions and weak risk sentiment this morning, but Australian PM Morrison ruling out sanctions against Chinese officials perhaps boosting AUD at the margin. The chart focus remains on whether the major 0.6670 area in AUDUSD can continue to hold the rally back.

CAD – USDCAD slammed below the 1.3850 support earlier this week, but has held its breath since. Risk sentiment and crude oil not supportive here and the Bank of Canada may have to step up its support measures next week, but no technical case for the USDCAD bulls without a rally to reject the latest selling impulse.

NZD – we single out NZD in our discussion of NZDJPY above and AUDNZD showing signs it is reluctant to break lower as the pair mulls whether to take a look higher at the structural 1.0800-50 pivot zone.

SEK – EURSEK trading down into last shreds of the range that stretch down below 10.42 Yesterday’s stronger than expected retail salles for April suggesting that the country’s light touch on Covid19 shutdowns has proven less disruptive than elsewhere and the Q1 GDP came in at a positive 0.1% QoQ – a dramatic contrast with the rest of Europe.

NOK – EURNOK momentum sluggish, but NOK looks firm, helped by a stronger outlook hopes for the EU in the wake of the recovery package announcement, if not so much by weaker crude oil prices.

Upcoming Economic Calendar Highlights (all times GMT)

• 1230 – US Apr. PCE Inflation
• 1230 – Canada Mar. GDP
• 1340 – Sweden Riksbank Governor Ingves to Speak
• 1345 – US May Chicago PMI
• 1400 – US Final May University of Michigan Sentiment
• 1500 – US Fed Chair Powell to Speak