Trump trade deal tease blasts USD lower, but…

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  A squeeze on long USD positioning over the last couple of sessions picked up pace overnight as US President Trump teased the market by supposedly ordering a draft of a US-China trade deal. This wouldn’t have anything to do with next Tuesday’s mid-term elections, would it?

We have speculated over the last couple of days that the CNY boost could be a move by China to pull the currency well away from its assumed floor (7.00 in USDCNY terms) ahead of a meeting with Trump at the G20 meeting at the end of this month. This was already lifting global market sentiment and boosting Asian FX before Trump poured fuel on the situation by supposedly ordering a draft proposal for a US-China trade deal.

No need for details just yet, apparently, or why the sudden change of heart and ongoing lack of any active negotiations. We would strongly suggest that this is nothing more than theatre designed to boost the market ahead of next Tuesday’s mid-term elections. Still, the market was not positioned for this nor China. This is most evident in the G10 FX in the surging AUD.

Yesterday’s Bank of England meeting triggered a powerful rally in sterling, as governor Mark Carney made it clear that he is ready to hike rates under any scenario – also a hard Brexit, due to the risk of a supply side shock. I am a bit surprised that the focus is on the supply and demand and not on defending the currency from an ugly adjustment. Regardless, the promise reduces the “hard Brexit discount” and is sterling supportive, just as the recent budget announcement and the shift away from austerity is strongly sterling supportive. As well, Carney underlined that in a smooth Brexit scenario, the economy is already running hot  – a heat that will only get hotter with fiscal relief.

The strong bounceback in global equities is mostly linked to the hopes that the US and China can steer clear of a further escalation in the trade policy showdown. The US treasury market shows that the relief rally only allows a fresh slide in bonds and rise in US yields – ironically a factor that will eventually act against the surge in risk appetite. 

That takes us to the most important economic calendar even of the week – today’s US October Average Hourly Earnings, which is already expected to surge to a new high for the cycle at 3.1% year-on-year. A disappointment could fan the flames of the USD correction, while an upside surprise surely revives Fed expectations for a December move and subsequent rate hikes. The December rate hike odds dropped as low as 65% during the recent equity market slump.


AUD is leading the charge in pricing in the enthusiasm for a US-China trade relation thaw and a stronger CNY. The first test for the pair is today’s US jobs report and whether a strong surge in earnings that is expected (or even upside surprise) powers a fresh rise in US yields and offers support for the US dollar, or if the focus remains on the prior factors supporting AUD and other Asian (and really global) FX versus the USD. The move has cleared the falling channel and if this extends, the 0.382 Fibo retracement near 0.7450 could become a focus – also as a previous area of interest and where the 200-day moving average is about to converge. This does not shift our longer term outlook for a weaker AUD. 
Source: Saxo Bank
The G10 rundown

USD – with tepid or worse data today and an extension of the CNY move to the strong side, the USD correction may continue apace, but I’m not sure that is what we’ll get. Let’s watch the bond market closely over today’s data either way.

EUR – the euro has bounced hard off the lows against the USD but only starts to look like it is reversing or neutralizing the trend if it can maintain above 1.1500. Elsewhere, euro not a stand out on the pressure from EURGBP selling, though it is firm versus CHF and JPY.

JPY – the worst of all worlds here for the yen, as risk appetite surges and bond yields rise – with or without broad USD strength, USDJPY may rally here if US yields punch higher in the wake of today’s jobs data.

GBP – sterling is well supported on the BoE and fiscal austerity ending – still have Brexit hurdles ahead, but this latest sterling rally is technically promising in pairs like EURGBP and GBPCHF (note the 200-day moving average in play for the latter).

CHF – Italian spreads to the core are generally deflating and risk appetite is surging make for a weak franc. Next hurdle is the 1.1500 area in EURCHF – also watching whether parity in USDCHF can hang in there after USDCHF once again rejected after an attempt to surge free of resistance.

AUD – a Reserve Bank of Australia meeting next week is the next test for Aussie, though the currency likely to take its clue mostly from the direction of CNY here (up a full percent now from its lowest level just a couple of sessions ago) and risk appetite.

CAD – the rally versus the USD is more muted here as oil prices suffered another ugly blow yesterday – the next pivotal level over today’s Canadian and US jobs data the 1.3000 level.

NZD – a Reserve Bank of New Zealand meeting next week, a day after Q3 jobs and earnings data sets up the potential for AUDNZD finally doing something (we like higher long term on valuation but lack a catalyst). The 0.6700 area a big one on the NZDUSD chart.

SEK – EURSEK is begging to break through lower through the range support – only held back at the moment perhaps by the fact that it is Friday and the 200-day moving average looms here. 

NOK – a fresh downdraft in global oil prices after the US’ stunning production figures and a waiver for eight nations to buy Iranian crude after sanctions are scheduled to go into effect on Monday.

Upcoming Economic Calendar Highlights (all times GMT)

1230 – Canada Oct. Employment Data
1230 – US Oct. Change in Nonfarm Payrolls
1230 – US Oct. Average Hourly Earnings
1230 – US Oct. Unemployment Rate.
1400 – US Sep. Factory Orders

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.