FX Update: A week to watch the USD and US-China FX Update: A week to watch the USD and US-China FX Update: A week to watch the USD and US-China

FX Update: A week to watch the USD and US-China

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  An interview with US Fed Chair Powell nudged the US dollar lower to start the week, but that effect may quickly fade as the chief source of risk this week may prove to be fresh developments in the increasingly fraught US-China relationship and the USD is largely holding its own as the week gets underway, even if volatility is sorely lacking.

Risk sentiment has apparently received a boost from the late Sunday TV programme 60 minutes and its interview with Fed Chair Jay Powell on the outlook for the US economy and the Fed’s willingness to continue providing the necessary support. While the Fed Chair by no means donned rose-tinted goggles on the shape of the recovery, his reassurance that the Fed is far from out of ammunition and other comments provided a tone that was perhaps seen by many as offsetting some of the negative reaction to last Wednesday’s speech. Powell again pushed against the idea of negative policy rates.

The FX reaction to Powell’s speech was less detectable, with the US dollar only a notch or two lower in places and notably stronger against the Chinese renminbi overnight. The recent drumbeat of developments and the latest US move against Huawei have us concerned that situation could continue to escalate from here. On that note, the USDCNY rate remains the most important exchange rate for the outlook here on any further signs of a worsening geopolitical strains or even threats that the US-China trade deal faces a collapse. This morning, the rate was 7.1150 and thus above the highest daily close for this year, with any approach to 7.20 likely to signal broadening unease and a large break above trig. In FX, the fallout from lower CNY would be likely felt most acutely in EM and with the G10 by AUD and NZD.

Not much on the calendar today as we await headlines from the US and China this week, but we also watch for an ugly rise in tensions on the US domestic political front as the Democrats massive $3 trillion stimulus passed by the House will not pass the Republican-majority Senate or get Trump’s signature. US Treasury Secretary Mnuchin and Fed Chair Powell are both set to testify before the US Senate Banking committee tomorrow on the CARES act, the rollout of which has not been without considerable controversy.

Chart: EURUSD still heavy
The EURUSD exchange rate is not necessarily the most sensitive to the overall USD direction, but is a key piece in establishing the broader USD levels and particularly whether the pressure on the USDCNY rate is waxing or waning. The 1.0800 level has proven very sticky of late, with several forays below quickly gathered up. A failure and daily close through 1.0750 could set the broader FX market on edge from here and add to the attention on the USDCNY rate to boot.

Source: Saxo Group

The G-10 rundown

USD – interesting to watch both the US domestic political front with tomorrow’s joint appearance of Powell and Mnuchin before a Senate committee as they face questioning on the CARES act.

EUR – slow burn EU existential questions are constantly there in the background – that story could heat up in June with the next EU council meeting. For now, watching the technical EURUSD developments as noted above.

JPY – Japan’s Q1 GDP growth was better than expected at -0.9% QoQ, showing that Japan managed to avoid the kind of damage that hit the EU, which registered a -3.8% drop for the same quarter. EURJPY downside risks still a theme.

GBP – sterling has rebounded from the worst of the pressure this morning – still solidly above the next key psychological level for GBPUSD at 1.2000, but performance not impressive given where other markets and currencies are trading. The EU’s Barnier said he was “not optimistic” on the outlook for a trade deal late last week. EU-UK Summit up next month.

CHF – EURCHF trading heavily just above the assumed SNB-defended floor of 1.0500 after the SNB reported another rise in weekly sight deposits.

AUD – the AUD riding high as of this writing as US equity futures and the European bourses are shooting out the lights. Enthusiasm for commodity exposure has seen BHP Billiton shares pulling sharply higher overnight. The chief concern for AUD would be US-China trade tension headlines this week. The latest RBA meeting minutes up tonight.

CAD – solid boost in oil prices and no surprises in the Bank of Canada’s Financial system review keeping the USDCAD price action bottled up in the range – awaiting a move outside of the 1.3850-1.4250 range to signal a break.

NZD – one data series we have not commented on in recent years is the foreign ownership of NZ sovereign bonds, which has been steadily declining since 2016 and picked up pace this year and is likely to continue apace given the zero rates and clear RBNZ intention to move to negative rates. NZ runs a sizeable -3% current account deficit and this is a clear additional tailwind for NZD bears.

SEK – for now, EURSEK finding a low ceiling at the 200-day moving average below 10.70. The chart has posted what looks a major top, but the real test for the SEK bullish case would be any more sizable decline in risk sentiment.

NOK – the key resistance around the 11.05 area in EURNOK still intact and getting some support from rising crude oil prices, though it takes a lot to lift longer time prices further out the curve to build a better case for a full reversal lower in EURNOK.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1400 – US May NAHB Housing Market Index
  • 0130 – Australia RBA Meeting Minutes






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/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992