FX Update: USD suddenly on defensive ahead of data. FX Update: USD suddenly on defensive ahead of data. FX Update: USD suddenly on defensive ahead of data.

FX Update: USD suddenly on defensive ahead of data.

Forex
John Hardy

Head of FX Strategy

Summary:  The US dollar hasn’t been able to sustain a new rally after Fed Chair Powell’s speech on Friday, with further risk of weakness if incoming data doesn’t bring new upside pressure on US yields. A new thaw in risk sentiment has the USD also teetering on the verge of a reversal lower versus the G10 commodity dollars as well, with the technical outlook finely balanced in pairs like AUDUSD and USDCAD. Incoming data could bring a bump ride through the August CPI number on September 13.


FX Trading focus: USD bulls on the defensive ahead of key data. EURUSD squeeze risk picks up above 1.0100

EURUSD has squeezed back higher this morning, and looks ready for a poke above 1.0100 if the minor US data points ahead of Friday’s US jobs report (today’s Consumer Confidence survey and JOLTS survey and Thursday’s August ISM Manufacturing survey) don’t offer any drama. But conviction is lacking as long as EURUSD remains within the seeming tractor-beam pull of parity and it is tough to develop conviction until we have had a look at the Friday’s US jobs report (big Average Hourly Earnings surprises may carry more weight than payrolls due to the inflation angle of earnings), the ISM Services survey on Tuesday (completely at odds with the alternative S&P Global non-manufacturing survey in July when the latter showed a slightly contraction while the July ISM Services was still a robust 56+. The flash August S&P Global reading worsened further to 44.0.), and most of all the August CPI release on September 13, given that the Fed has pre-declared that it is willing to tolerate economic weakness if inflation is not yet under control.

ECB Chief Economist Lane was out yesterday arguing for a “steady” pace of “smaller” rate hikes rather than large moves – presumably a series of 50 basis point moves – to avoid “adverse effects” and as Lane believes that this would make it easier for ECB to course correct. This seemed to help cut short the EUR rally yesterday, but rate expectations for the ECB meeting next week are still around 50/50 for a 75-basis-point move, somewhat lower than they were at the peak yesterday after the hawkish speech from the ECB’s Schnabel at the Fed’s Jackson Hole conference at the weekend.  The German flash August CPI will be out around pixel time for this article.

Chart: EURUSD
The US dollar backing off today and EURUSD pulls back above parity again after bobbing back and forth around that level yesterday and into this morning. The move likely only picks up likely order-driven momentum tactically on a move above 1.0100 and we face a further cavalcade of incoming data tests for the USD through the August US CPI figure as noted above, and for the EUR side of the equation, the test is next Thursday’s ECB meeting as well as whether Russia turns the gas back on next week after the purported maintenance of the Nord Stream 1 pipeline in coming days. A squeeze scenario could see 1.0200, with anything above that beginning to suggest at least an intermediate challenge of the down-trend. Short term long option strangles are one way to trade for zany choppiness in coming sessions (A long strangle approach is an idea for the indecisive trader, or the one that believes that we might see a squeeze on a move above 1.0100 but one that won’t hold – for example long 1.0125 calls and long 0.9975 puts w/ expiry next Wed. or Thursday, or a trader can simply choose one or the other leg if biased.)

Source: Saxo Group

Elsewhere, the tactical situation could not be more in limbo in pairs like AUDUSD and USDCAD, which teased a break in favour of a stronger US dollar, only to dive back into the range, if with insufficient force to suggest a tradable reversal. The trading conditions might remain treacherous there at least until the other side of the US jobs report. A CAD supportive crude rally, meanwhile, is fading fast today.

Table: FX Board of G10 and CNH trend evolution and strength.
The US dollar is still top dog, but the Euro momentum has impressed in the wake of ECB guidance in recent days. Leading the race to the bottom is GBP.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
EURCHF is on the verge of flipping to positive for the first time in a very long time (last negative signal an impressive 53 days so far), EURGBP went positive so two sessions ago, and EURJPY did so yesterday. Still some work to get EURUSD there….

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1200 – Hungary Rate Decision
  • 1200 – US Fed’s Barkin (Non-voter) to speak
  • 1200 – Germany Aug. Flash CPI
  • 1300 – US Jun. S&P CoreLogic Home Price Index
  • 1400 – US Aug. Consumer Confidence
  • 1400 – US Jul. JOLTS Job Openings
  • 1500 – US Fed’s Williams (voter) to speak
  • 1600 – ECB Speakers Holzmann and others
  • 0130 – China Aug. Manufacturing/Non-manufacturing PMI

Disclaimer

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
Beethovenstrasse 33
CH-8002
Zurich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

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.