Swedish CPI falls flat, GBP focus on data

Forex 5 minutes to read

John Hardy

Head of FX Strategy

Summary:  Currency traders are in hibernation for the moment, awaiting the outcome of the US-China trade negotiations and the next steps for Brexit. Still, sterling traders will see some important data today on UK employment and claims.


FX traders really struggling for inspiration as we are supposedly awaiting the US-China trade negotiation outcome – or not, if we are faced with a significant delay. Meanwhile, something significantly appears positively priced into the markets- either that or investors are simply convinced that policymakers are so ready to ease again that there is no danger in taking on maximum risk.

While equity markets in places have launched V-shaped recoveries and likewise in high-yield credit, however, sovereign bond markets suggest an ongoing significant level of concern. In FX, this has all translated into tepid range trading and general unwillingness to drive directional moves, especially with China’s heavy hand on the renminbi’s exchange rate.

In our trading thoughts, we continue to like adding modestly to long volatility positions in the USD and JPY (generally for upside), but keeping something in reserve for surprising developments either way.

Trading interest

Short EURUSD – no change here: still prefer the downside in EURUSD, perhaps given the tactically frustrating price action, with exposure via put options – 1.10 for four months takes us to other side of the EU parliamentary elections.

Short AUDUSD – a bit more encouragement for spot-trading bears after the turnaround yesterday. But given the lack of momentum and the risk that nothing will happen until we get US-China trade headlines in coming weeks, the expression of a view in two-month or longer put option strategies is an idea.

Short EURJPY – here via options (put spreads for one month or longer in case price action lower is halting) as the local price action has proven impossibly choppy and rangebound and the timing of a return of weak risk appetite difficult to discern. 

Chart: EURSEK

Interesting test today of EURSEK with the Swedish CPI release coming so weak and the 10.50 area providing resistance for the latest advance. This area is pivotal if a floor is to be kept under the krona and if the knee-jerk move sticks higher into the close, the focus will rapidly shift to the highs for the cycle. The Riksbank’s confidence that it can normalise slowly appears more ill-founded than ever, and the market largely agrees – and it did even before today’s CPI print, judging from Sweden’s yield curve.
Source: Saxo Bank
The G-10 rundown

USD – the greenback has hung in remarkably well through this resurgence in risk appetite as Fed expectations have been lowered. But there is no momentum and we are all awaiting the next headline risk. 

EUR – price action suggests traders have given up on directional moves for the moment as we are all awaiting the break of the obvious EURUSD range levels – positioning via options seems preferable to getting caught up in the feints of spot moves that don’t follow through 

JPY – USDJPY still hasn’t fully recovered from last week’s reversal, but downside interest only likely to pick up if and when risk appetite rolls over. Bond markets also continue to leave JPY traders guessing.

GBP – the UK data today could move sterling, especially on a strong uptick in Jobless Claims for January, which is more recent than the December employment and earnings data. This could feed into fears that even a delay of Brexit is sterling negative if it continues to drive a delay in business investment. Honda moving house from Swindon no help at the margin either. 
 
CHF – crossfire of factors here as wildly positive risk appetite (CHF-negative) contrasts with a depressed economic outlook for the Eurozone; the potential for fresh ECB easing (CHF positive) leaves little directional impulse for now.

AUD – the backup rally in AUDUSD so far relatively benign for the bears, but we wonder whether traders must sit on their hands until knee-jerk reactions to incoming US-China trade negotiation headlines have faded. On the one hand, the terrible domestic credit outlook is a powerful negative while the resurgence in key commodity prices, especially iron ore, have provided some offsetting support.

CAD – the consolidation phase in USDCAD has been quite orderly and we prefer to keep the focus higher as long as the price action remains in the 1.3150-1.3200 zone or higher.

NZD – we have long remarked on the overvaluation of the kiwi, but waiting for a catalyst that trigger’s a market reassessment. Recent tensions with China are not supportive, but this would need to escalate significantly to deserve more market attention.

SEK – CPI miss today carrying considerable weight, as the CPI coming off now despite the still very weak SEK (and it was readily apparent that achieving multiple prints above 2.0% for the core CPI over the last year have only been driven by persistent SEK weakness). This suggests the Riksbank is in a sorry place, dealing with housing weakness and the weak economy.

NOK – the EURNOK sell-off resumption hasn’t impressed given the fundamental backdrop of improved risk appetite and a significant ramp in oil prices – we are cautiously bearish EURNOK, but would like to see momentum building again and soon.

Upcoming Economic Calendar Highlights (all times GMT)

08:30 – Sweden Jan. CPI
09:30 – UK Dec. Average Weekly Earnings
09:30 – UK Dec. Dec. Employment Change / Unemployment Rate
09:30 – UK Jan. Jobless Claims Change
10:00 – Germany Feb. ZEW Survey
11:30 – Sweden Riksbank’s Ingves to Speak
13:50 – US Fed’s Mester (Non-Voter) to Speak
15:00 – ECB’s Praet to Speak
15:00 – US Feb. NAHB Housing Market Index
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.