FX Update: Markets riding roller coaster of trade headlines FX Update: Markets riding roller coaster of trade headlines FX Update: Markets riding roller coaster of trade headlines

FX Update: Markets riding roller coaster of trade headlines

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  Traders are getting taken for a rough ride in this headline-driven market as the dark clouds yesterday from Trump comments and a Chinese riposte this morning were suddenly parted by a Bloomberg article suggesting that a phase one trade deal remains on track despite heated exchanges between the two sides.

Reader’s note: most of the below  was composed before the late breaking news from Bloomberg citing officials saying that a phase one US-China trade deal remains on track despite all of the aggressive  exchanges between the US and China.

We noted the head-scratching combination on Monday of weak equities and weak safe haven bonds after US Commerce Secretary Ross said the US plans to implement the December 15 round of tariffs on the remainder of Chinese imports if no trade deal is struck. Cue yesterday’s comments from US President Trump on possibly delaying any trade deal until after the election, which makes the first threat even more serious for global markets. In reaction, equities were once again weak, while safe haven bonds swung around from weakness to pronounced strength – a more traditional state of affairs.

As for FX, we have seen more of the JPY and CHF strength we  would normally expect in these circumstances, but the transmission into FX has been unusual in other ways, most notably in the fairly weak US dollar here and the lack of more weakness in currencies traditionally more sensitive to risk aversion (and China worries) like AUD and NZD. Hard to tell whether this latter behavior can persist. We did note on today’s Market Call that not all warning bells are ringing equally in our measures of risk aversion. One barometer of trade hopes – the USDCNY – is pointing in the wrong direction as the rate edged above 7.07 at one point during this morning.

Headline risk is extreme over coming sessions as we all know that Trump can do anything at any time. Would a slight deepening of this equity sell-off see him delaying or vastly reducing the December 15 round of tariffs, for example – leaving the market hopeful that the situation will simply be on hold for a year or more? We shall see, in the meantime, let’s have a look at the incoming data, especially today’s US November ISM Non-manufacturing survey and tomorrow’s  US November jobs  report. Market expectations for the Fed have been oddly inert over the last couple of days, with expectations only about 5 bps lower through early next year after yesterday’s developments, for example. Expect a larger jolt to the outlook on bad data misses out of the US. (And as if to make the point – just before wrapping up today’s commentary we see the headline from Bloomberg that “US and China move closer to trade deal despite heated rhetoric”)

We note the recent triple divergence in USDJPY (three new highs in price, each at a lower high in the MACD) and the vigor of the recent sell-off that suggest the risk of a major turn lower here. Of course, if we turn right back around and see the US and China able to reach a basic phase-one deal as indicated in a late breaking article just before pixel-time, we could yet get caught in another “pump and dump” cycle typical of headline driven markets. Weak US data is a different risk, however, for USDJPY than trade-deal news.

Source: Saxo Group

The G-10 rundown

USD – most notable development here is that weak trade deal sentiment is not supporting the US dollar – and if data is weak through tomorrow we may have to add pressure from a more dovish Fed.

EUR – the EURUSD holding up well here after the recent rally of the key 1.1000 area,  but needs more – especially a punch above 1.1180 to merit hopes that the long period of moribund action is ending.

JPY – the yen getting more traditional support here as safe haven bonds were bid yesterday on top of the weak risk sentiment, relieving some of the confusion from Monday’s session. JPY

GBP – sterling oddly aggressive this morning, given a clear tightening in the polls, but the weak USD and GBPUSD pulling above 1.3000 has likely inspired considerable order flows.

CHF – the franc doing its safe haven thing as EURCHF presses down into the lower half of the late range.

AUD – the Aussie is hanging in there rather well, given the news flow. The GDP print wasn’t weak enough to merit much comment – October Retail Sales up tonight.

CAD – the latest apparent decline in trade deal hopes and correction in oil prices could underline the Bank of Canada’s recent tilt back to a more cautious stance today. US data also important for CAD in the crosses. USDCAD poised near important 1.3300-50 pivot zone.

NZD – NZDUSD has broken free of the former range and what arguably looks like a head and shoulders formation, but now confronts and 200-day moving average below 0.6550. Tough to enthuse on the kiwi’s prospects in this environment but its resilience remarkable.

SEK – weak risk sentiment and now a weak November Services PMI (47.9) out of Sweden this morning to add to the terrible Manufacturing PMI from earlier this week and SEK is backpedaling further. Still, the SEK rally not showing signs of breaking unless EURSEK jolts back above perhaps 10.70.

NOK – EURNOK pulling to a new local high on a very hostile backdrop for NOK, including concerns for the global growth outlook on the latest US-China trade woes and seasonality. Last resistance is toward the 10.30 top

Today’s Economic Calendar Highlights (all times GMT)

  • 0930 – UK Nov. Services PMI
  • 1315 – US Nov. ADP Payrolls Change
  • 1445 – US Nov. Final Markit Services PMI
  • 1500 – Canada Bank of Canada Rate Decision
  • 1500 – US Nov. ISM Non-manufacturing
  • 1530 – US Weekly DoE Crude Oil / Product Inventories
  • 0030 – Australia Oct. Retail Sales

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.