Market mood fragile into a busy week

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  A busy week on the macro front sees US PCE inflation data out today against a shifting and potentially treacherous global backdrop of Brexit, European existential issues, and of course the all-important Chinese yuan.

A very busy week ahead on the economic calendar, starting with US PCE Inflation data up later today. But the spotlight can quick be stolen at any moment by headline risks linked to Brexit, European Union existential issues, and especially the status of the CNY floor, all while animal spirits in global equities remain on the defensive.

In EM, the Brazilian real continues to march to the beat of its own drummer, closing on a strong note into the weekend ahead of what looked like a sure victory for Bolsonaro in the presidential election run-off. Indeed, Bolsonaro won 55-56% of the vote and will have enough of a mandate to move on his pro-business platform, which was celebrated by the market already in the Asian session with a strong rise of more than 10% in a Brazil ETF trading in Japan. The USDBRL reaction is also key, and the futures points to a strong opening for the real in American trading hours later, up over 1.5%.

In Asia, weak asset markets and concerns on the risk that China will eventually abandon the CNY floor have kept Asian currencies pegged near the lows for the cycle versus the US dollar. The renminbi pulled away from new lows versus the USD and closed on a strong note on Friday, but weakened anew to start this week. As I posted on Friday, the USDCNY exchange rate is the only thing that matters here for FX traders and volatility in the short term and trading ranges are likely to remain bottled up and treacherous until we get a sense of China’s intentions for its currency.

Over the weekend, the election in the German state of Hesse saw the expected flight from the centre of German politics as both the CDU and SPD suffered ugly drops in representation, with the latter losing full a third (-10.9%) of its prior result and the CDU losing 11.3% of its votes, polling at 27%. The SPD is desperate and in an impossible situation – it clearly needs to pull out of the grand coalition, but doing so would bring down the government and require new elections that would cement its fall. The Hesse election result sets up an interesting CDU party conference in December, where Merkel’s fate as Germany’s leader could be in play.

Over the weekend, Chinese exporters reported weaker activity levels in October, according to an FT survey (paywall). The FT survey reveals still hopeful expectations, but also discusses the concern that activity levels at present could be misleading as exporters scramble to push through as much volume as possible before the US tariff levels rises to 25% on January 1. It is clear that the activity surveys in coming months and especially in early 2019 will be critical for measuring the impact of the trade showdown between the two powers. Asian equity markets are already voting with their feet, as the Monday session saw yet another weak session for a wide swathe of major Asian indices.


The AUDUSD bounce from new lows looks significant unless we see it merely through the lens of USDCNY, which avoided a melt-up on Friday after new highs for the cycle were posted. An AUDUSD rally is not likely to get underway until or unless China makes a more forceful defense of its currency.
Source: Saxo Bank
The G-10 rundown

USD – the greenback pulled away from its strongest levels late Friday, but the move lacked force and likely linked to the USDCNY pulling back from the brink.

EUR – not sure what the spin is for the euro at the moment – but German 10-year Bund yields pushing down close to the lows for the cycle now after the attempt to break higher just a few weeks ago suggests little hope for a positive outcome on Italy. The Telegraph’s Ambrose Evans-Pritchard asks whether Italy is set to hit a wall as Italian banks have tightened credit and the populists’ budget projections may be far too optimistic. 

JPY – US markets stepped back from the brink on Friday, helping the JPY to steer clear of a melt-up, but the yen looks ready for fresh strength if the mood sours again.

GBP – sterling on the defensive ahead of the Autumn Budget Statement later today, with Chancellor of the Exchequer Phillip Hammond expected to announce a more expansive fiscal stance and likely to bring forward income tax measures that will put more money in consumers’ hands. Would normally be very GBP-positive were it not for the Brexit uncertainty.

CHF – no fresh drivers to widen EU spreads as Italian yields are stable after the bond ratings agencies steered away from igniting a run on Italy’s BTP’s last week. Watching parity in USDCHF for whether a more forceful break higher sparks interest for USDCHF longs

AUD – as noted above, the AUDUSD bounce looks technically interesting, but is likely linked very tightly to USDCNY direction here – which is in China’s hands, not the markets’.

CAD – As with other USD pairs, new USD strength brushed aside for the moment, but not yet forcefully enough to suggest a bearish reversal.

NZD – AUDNZD in an odd squeeze at the open of trading overnight, but has backed down again – keeping an upside resolution at bay for the moment.

SEK and NOK – price action continues to steer away from Scandie strength as the two currencies have a hard time catching a more convincing bid when risk aversion and an economic slowdown are the rising concerns

Upcoming Economic Calendar Highlights (all times GMT)

• 0930 – UK Sep. Mortgage Approvals
• 1230 – US Sep. PCE Inflation
• 1530 – UK Budget Statement

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

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.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

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

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 and Product Disclosure Statement 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.

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.