Forex 4 minutes to read

GBP a slave to Brexit headlines, NZD jumps on CPI

John Hardy

Head of FX Strategy

Summary:  The trading ranges across FX are muted, with the JPY easing off the gas yesterday as risk appetite remains nervous but stable and global bond yields picked up. Elsewhere, sterling is back from important support versus the euro on the latest Brexit headlines and NZD jumps on a hot Q3 CPI print.


The US dollar bounced from yesterday’s local lows versus the euro and the yen, with no discernible catalyst, certainly not a very weak US retail sales report for September, which was flat for the month for the core figure. Today’s US event risks are second tier stuff and tomorrow’s Federal Open Market Committee minutes will be taken with a grain of salt. It feels like the FX market is reactive and a follower rather than a leader here and direction won’t be found until bonds or equities make a statement (or both at the same time, even) with FX volatility only really picking up if China chooses to allow the renminbi floor to fall (7.00 in USDCNY the critical focus there).

CAD jumped briefly yesterday after the Bank of Canada released a survey pointing to strong business sentiment despite all of the recent fuss over NAFTA and its replacement deal the USMCA. USDCAD has recently generated a bullish reversal that keeps the upside in focus as long as we trade above 1.2900-50 area, but if we widen the lens, the pair has been in a very sloppy descending channel since June/July, so the jury is out on direction.

New Zealand reported a strong rise in Q3 CPI overnight, with the quarter-on-quarter headline up an impressive +0.9%, which works out to strong inflation indeed on an annualised basis. But the trade-weighted NZD did suffer considerable weakness in the quarter, so extrapolation is difficult and we have a Reserve Bank of New Zealand with a dovish captain at the helm in Adrian Orr. Still, AUDNZD is finally on the move and testing an important pivot zone in the 1.0850-00 area that could open up the range toward 1.0500. We would suggest limited upside potential for the kiwi here even if it manages to extend the bounce.

Chart: EURGBP

Brexit giveth and taketh away at nearly every turn. Sterling is back on the bid today as the rhetoric waxes more friendly again between the two sides even if just yesterday the EU’s Donald Tusk suggested that a no-deal Brexit is more likely than ever before. UK Prime Minister May is headed to Brussels on Wednesday, where the headline risk grows again. The technical key was the 0.8800+ resistance area in EURGBP holding for now. That downside range low below 0.8625 will likely remain a hurdle until we get something more concrete on the Brexit front.

The G-10 rundown

USD – the greenback looks more likely to fade if risk appetite makes a comeback and yields are generally stable or even slightly higher around the world, driving a convergence theme. As well, positioning looks like a strong risk as the speculative world is very long of US dollars.

EUR – is waiting for the next round of headline risks on Italy as the government coalition there has passed its budget and now we await the EU response. Italian yields lower to start the day… 1.1600 local resistance/pivot area in EURUSD.

JPY – the yen is lower as risk appetite is stronger out of the gates in Europe. EURJPY avoided a breakdown through key areas after another probe yesterday below 129.50. A risk appetite comeback here is the scenario most likely to reverse the recent JPY strength.

GBP – sterling is  bouncing strongly and we like GBPCHF to express further upside potential, particularly on strong UK data today, while still cognizant of headline risks. Longer dated options are one approach for maintaining a position through all of the volatility.

CHF – the franc avoided testing below the sloppy rising channel in EURCHF – like the potential for considerably more CHF weakness if we can put off a further Italian budget showdown until next year and get a Brexit deal done. 

AUD – the Aussie is under the kiwi’s thumb but stands a chance of a short squeeze if risk appetite survives the latest onslaught.

CAD – as indicated above, the local USDCAD moves bullish but the bigger picture still points to a descending channel argument, so awaiting USD direction as an indicator for USDCAD – a break back below the 1.2900 area 200-day moving average sees the bearish potential picking up.

SEK – conditions today are looking favourable for a follow through higher for SEK, with the next hurdle the fast-rising 200-day moving average in EURSEK currently around 9.2650 and opening for 10.10-10.0 if broken. 

NOK – both of the Scandies looking bid this morning – EURNOK is closer to a big range level around 9.40 that could open for 9.25-20 if broken.

Upcoming Economic Calendar Highlights (all times GMT)

0830 – UK Aug. Employment Change
0830 – UK Aug. ILO Unemployment Rate
0830 – UK Aug. Earnings
0830 – UK Sep. Claims Change
0900 – Germany Oct. ZEW Survey
1200 – Hungary Central Bank Decision
1315 – US Sep. Industrial Production / Capacity Utilization
1400 – US Oct. NAHB Housing Market Index
2015 – US Fed’s Daly (Voter) to speak
2120 – Australia RBA’s Debelle to speak

 

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd 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 Combined 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.

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) Pty Ltd.
Level 25, 2 Park Street
NSW 2000
Sydney
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) Pty Ltd 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 & Combined Financial Services Guide & 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. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. 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.