FX Update: Increasingly two-way traffic for USD until FOMC? FX Update: Increasingly two-way traffic for USD until FOMC? FX Update: Increasingly two-way traffic for USD until FOMC?

FX Update: Increasingly two-way traffic for USD until FOMC?

Forex
John Hardy

Head of FX Strategy

Summary:  Friday’s US jobs report showed solid US payrolls growth and a far hotter than expected jump in average hourly earnings, and yet US yields and the US dollar couldn’t sustain the kneejerk reaction, perhaps in part as the data was more mixed than the headlines suggest. Regardless, markets seem to only have eyes for a coming soft landing narrative. Still, the week ahead may offer little further fuel to drive that narrative ahead of next week’s U. Tonight, the Reserve Bank of Australia meets, with market observers divided on the odds of another hike.


Today's Saxo Market Call podcast
Today's Market Quick Take from the Saxo Strategy Team

FX Trading focus: USD fails to sustain a bid on November jobs report, but few drivers for bears this week ahead of next week’s CPI report and FOMC meeting.

There was a bit of something for everyone in the Friday jobs report, but conviction in the reliability of the data is certainly not one of the takeaways. For starters, the October Average Hourly Earnings was revised sharply higher to 5.6% from the original 4.7% - which if nothing else suggests we should take the latest data in the AHE series with extreme caution – tough to trust a number that can be revised that much in the space of a month. Then, the November Average Hourly Earnings data came in hot at +0.6% month-on-month vs. +0.3% expected, although almost all of that can be explained by the denominator (average weekly hours) dropping by 0.1 hours. Had it not, the number would have been in-line with expectation. Then there is the ongoing discrepancy between the establishment survey that calculates the nonfarm payrolls change (+263k vs. +200k expected, with a modest -23k revision for the prior two months’ data)

So the market quickly wiped away the kneejerk sell-off in US treasuries and rally in the US dollar and the greenback extended a bit weaker still in places in the Asian session overnight, encouraged in part by a steep plunge in USDCNH as China continues to announce opening up measures. By the way, the further plunge in USDHKD that has taken that exchange rate all the way back toward the low of the band after it was pegged at the top of the band for months and the HMA was intervening with tens of billions of USD suggests

The data calendar this week for the US is sparsely populated after today’s ISM Services (expected at 53.3 and thus the lowest since the pandemic wipeout months of the spring of 2020, with all eyes on the November CPI report next Tuesday followed by the FOMC meeting the following day.

Tonight – Tuesday in Asia – we have an RBA meeting, with the market divided on the prospects for another 25 basis point move from the Philip Lowe and company, but leaning that way – more below in the AUDUSD chart discussion.  The steep recovery in the Euro has helped ease ECB expectations for next Thursday’s meeting toward 50 basis points. Given the excess pressure on the European economy from higher energy prices, I have a hard time seeing EURUSD upside on anything save for easing financial conditions/risk sentiment generally, not because we will be able to put together a positive spin on the relative outlook for the EU economy any time soon now that we have achieved a resetting of most of the intense pessimism directed at Europe since the Russian invasion of Ukraine.

Chart: AUDUSD
The Australian dollar should have found the recent backdrop supportive: rising metals prices and improving risk sentiment in the region on signs that China is accelerating its opening up measures. The main Australian index last week even traded within a few percent of all-time highs (in AUD terms). But the chief restraint on the currency is the RBA, which continues to fret the impact of further tightening on household budgets as the adjustable rate mortgages reset from here. The market is divided on whether the RBA hikes 25 basis points to take the rate to 3.10%. With no pressure on the currency outside of the crosses (i.e. AUDUSD well off the lows) and with Australia data tepid of late on the consumption side, I wouldn’t be surprised if the RBA skips hiking tonight, or if it does, fails to alter forward guidance much. Interesting to see that AUDUSD struggling for new highs here ahead of the RBA tonight and ahead of the 200-day moving average up above 0.6900. I suspect global liquidity/risk sentiment and the USD will be in the driver’s seat here rather than any significant surprise from the RBA.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
More of the same, as the USD drops further (although bears may run a bit dry of fuel until the big test for the greenback next week) and CAD continues to post the strongest negative trend readings, while the NZD likely faces a big test over the RBA tonight (AUDNZD flows likely behind much of the NZD strength of late).

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
USDJPY hanging on to the 200-day moving average (currently near 134.60), if with a bit of slippage late last week and overnight – the “decider” there likely to be the 10-year US treasury yield benchmark and the 3.50% level.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1330 – Canada Oct. Building Permits
  • 1445 – US S&P Global Nov. Final Services PMI
  • 1500 – US Oct. Factory Orders
  • 1500 – US Nov. ISM Services
  • 1600 – ECB's Wunsch to speak
  • 2330 – Japan Oct. Labor Cash Earnings
  • 0330 – Australia RBA Cash Target

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
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.