FX Update: Triple whammy dents global sentiment FX Update: Triple whammy dents global sentiment FX Update: Triple whammy dents global sentiment

FX Update: Triple whammy dents global sentiment

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  Risk sentiment has taken a turn for the worse since multiple developments yesterday in the US session, especially the belligerent speech from US President Trump at the UN souring hopes for productive US-China trade talks next month. And sterling could be in for further pressure even on the rising probability of a Brexit delay.


A triple whammy of news developments yesterday set the market on edge. First is the gathering momentum in favour of impeachment of US President Trump by House Democrats, who probably have a sufficiently large majority in favour of impeachment if a hearing goes forward. The problem for the Democratic side is that a removal of a sitting US President requires a two-thirds majority in the Senate, which is not going to happen. Still, the lack of Republican disruption of investigation into the Ukraine affair points to the severity of the charge against Trump on this particular issue and testimony from the whistle-blower in the case could prove a watershed event. Still, the impeachment process, if it goes forward, will mostly be political theatre that may or may not sway a small sliver of voters in the 2020 election who aren’t already committed partisans on either side, no-matter-what.

The other two development rubbing risk sentiment the wrong way were Trump’s rather belligerent speech on Iran and China before the UN yesterday, in which he accused China of gaming the system, and the shock weakening in US Consumer Confidence this month, particularly for expectations, which looks a bit more serious this month, given that the last time we saw weakening confidence it was clearly linked to the cratering stock market in late 2018. We discussed these developments and more in this morning’s podcast, by the way.

Yesterday’s latest chapter in the never-ending Brexit drama saw a brief further sterling rally attempt as the UK Supreme Court ruled that Boris Johnson’s move to prorogue (suspend) parliament was illegal, frustrating his efforts to go it alone in the final weeks of negotiation with the EU before the October 31 deadline. The market’s kneejerk reaction is that this is good for sterling as it lowers the risk of a chaotic exit on October 31, but the market is right to show caution today, as we are no closer to clarity on the Brexit process here. Parliament will reconvene today and we should be wary of reading the headlines hammering on Johnson as embattled and defeated, as the situation may play into Johnson’s and the pro-Leave hands in an election and/or referendum scenario that it seems we must have in the event of a delay.

Chart: GBPUSD
Cable could take a drastic turn for the worse here as an extension of Brexit dysfunction for the rest of this year, even if we avoid the immediate risk of a cliff edge scenario at the end of next month, will only make the gathering clouds over the UK economy worse still on a weak credit impulse and business confidence weakening further. 1.2500 is an important level on the chart for all manner of technical reasons (round level, prior low, and Fibonacci retracement. A test of the cycle lows near 1.2000 is a base case for bears, using the 1.2500 pivot area (with a cushion) as the stop for short positions.

Source: Saxo Bank

The G-10 rundown

USD – a move forward with US impeachment hearings might dent confidence, will definitely make for lower odds of cooperation between Trump and Congress on fiscal stimulus\tax cuts, etc… Offsetting is the ongoing risk of the USD liquidity issue and whether the Fed is sufficiently rising to the challenge.

EUR – EURUSD still languishing in the 1.1000 pivot zone with the general frustration of not seeing the path to fiscal stimulus, a path that German industry is trying to open up with a request that the government ends its new borrowing ban.

JPY – perking up a bit in noticing the e drop in yields, but the US and Japan have failed to move in agreement on tariffs, so an ongoing risk of a trade spat keeping a lid on JPY at the margin, perhaps.

GBP – as noted above, even if we can fully remove the cliff-edge October 31 Brexit scenario, we’re not closer to understanding how this shakes out – we see asymmetric downside risk for sterling.

CHF – risk off and strong bond markets pressuring CHF higher again – EURCHF in a probe of the lows here soon and could go lower on a deepening of these developments.

AUD – RBA’s Lowe tried to sound upbeat yesterday, but still clearly willing to ease and he fretted the weak consumption despite a strong labour market – AUDUSD under pressure again and could be ready to challenge the lows for the cycle on further signs that US and China won’t move to a wider détente.

CAD – wakes us up on a close above 1.3300 or below 1.3200 – latest weakening of market sentiment and weak oil prices not helpful for CAD and we think the market’s BoC outlook looks complacent (too high relative to US and other peers).

NZD – the RBNZ downshifting to wait and see mode and overextended NZD shorts have been in for consolidation, but the narrative for a structural AUDNZD rally may resume soon – 1.0700 first important support there.

SEK and NOK – both of the Scandies looking somewhat resilient relative to the market backdrop and weak risk sentiment, but the key EURSEK and EURNOK pairs bogged down in the range.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1100 – Czech Central Bank Rate Announcement
  • 1200 – US Fed’s Evans (Voter) to Speak
  • 1400 – US Fed’s Brainard (Voter) to Speak
  • 1400 – US Aug. New Home Sales
Disclaimer

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
Australia

Contact Saxo

Select region

Australia
Australia

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.