FX Update: USD pulls to new highs as new quarter rolls into view FX Update: USD pulls to new highs as new quarter rolls into view FX Update: USD pulls to new highs as new quarter rolls into view

FX Update: USD pulls to new highs as new quarter rolls into view

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  The USD has firmed to new local highs against several currencies without much help from coincident indicators and despite an indifferent ADP payrolls report yesterday. One reason for fresh USD strength could be the latest burst of USD liquidity suggesting that the Fed will have no choice but to signal a tapering sooner rather than later. US ISM Manufacturing up later today as many see the pace of recovery peaking here.

FX Trading focus: Burst of USD liquidity into USD end to eventually force Fed’s hand

The US dollar rallied further into quarter-end, especially against the Japanese yen yesterday and this morning. Looking at a weak Q2 Tankan survey overnight, one might be tempted to believe that this weighed on the yen, but alas, there was no interesting price reaction around its release, with the bulk of the move unfolding in the European afternoon yesterday and the follow through coming in early European hours this morning. US treasuries have lurched slightly lower to start the quarter, but the move pales in comparison to the move in USDJPY. It’s tough to build a narrative around the move, other than that the fresh, enormous surge in the Fed’s reverse repo facility yesterday (to $992 billion from $841 billion the prior day) could be driving the belief that the Fed will have no choice but to taper asset purchases sooner rather than later, as purchases are one of the drivers in unprecedented growth in that facility over the last few months.

The facility began inflating, it should be noted, around the very time frame that US long yields peaked out at the end of Q1. Certainly, as we discussed in this morning’s Saxo Market Call podcast, it will be interesting whether the transition to quarter-end drives any slowdown in the inflation of this facility and therefore a move to higher US yields or if the Treasury’s ongoing addition of liquidity from its drawdown of its account with the Fed d. Regardless, these factors are not driving any shift in Fed expectations, where rate hike expectations have actually eased a couple of basis points for the beginning of 2023. The June US ADP payrolls change data yesterday offered no surprise, as the better than expected June number was precisely offset by a downward revision of -92k in the May data.

USDJPY is stretching to new cycle highs here well above 111.00, with no apparent need for the usual coincident indicators to provide support, although US yields have jumped slightly since late yesterday, a possible sign that quarter-end effects are in play. The next resistance level for this pair is the big 114.50 area that held all rallies back for the bulk of 2017 after Q1 and briefly in 2018 as well. To get anywhere close to that level. I suspect we would need to see US long yields picking back up toward the range highs. Tomorrow’s June US jobs report is the first test of whether the upside of this channel established since late April continues to define the price action.

Source: Saxo Group

BoE’s Bailey clearly on Team Transitory – A speech this morning from Bank of England Governor Bailey saw considerable emphasis on a view that inflation would prove transitory as the UK economy is seen mean reverting to lower growth, the assumption that supply chain disruptions will fade and the like. This is weighing on sterling, with EURGBP back above 0.8600 in today’s trade and well below 1.3800 and the prior pivot low from the post-FOMC sell-off. This leaves the 1.3670 area pivot from April as the next key level, which also know almost coincides with the 200-day moving average. Interesting to contrasts Bailey’s complacency with exiting Chief Economist Haldane’s shouting on inflationary risks from every roof top. One of these two will be tucking into some humble pie in a year’s time.

Riksbank: low expectations and even less delivered – Recently, forward expectations for Swedish liftoff have seen a modest stirring, with 2-year swap rates rising 3-4 basis points above the prior peaks of earlier this year to around 7 bps, but today’s Riksbank offered nothing new for market observers, stuffing rate expectations back about 1.5 bps lower after the bank failed to indicate any likelihood of a lift-off in its three-year policy forecast. This, as core CPI recently reached 2.5% year-on-year and the composite PMI for Sweden reached 70.2 in May, the highest ever recorded. SEK was modestly offered on the event as the Riksbank will clearly prove a laggard in following other central banks in shifting to a tightening regime after burning its fingers on a premature rate hike cycle in 2010-11. I would like to fade EURSEK eventually, but waiting for pattern reversals or a proper squeeze to develop.

Table: FX Board of G10 and CNH trend evolution and strength
The USD up-trend has reasserted, while the JPY attempt to get something started to the upside has been almost entirely neutralized. Note the AUD weakness becoming a bit more prominent as well.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
Not much sticks out here as we are looking for whether continuation trades in JPY downside and USD upside develop further. The strongest reading now across the board is the USDCHF positive tally of 6.3 as the pair posts new highs since early April – needs to hold above 0.9200 through tomorrow’s US jobs report to maintain the upside momentum.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1130 – US Jun. Challenger Job Cuts 
  • 1230 – US Weekly Initial Jobless Claims 
  • 1400 – US Jun. ISM Manufacturing 
  • 2200 – New Zealand Jun. ANZ Consumer Confidence 


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.