FX Update: An important weekly close for the US dollar FX Update: An important weekly close for the US dollar FX Update: An important weekly close for the US dollar

FX Update: An important weekly close for the US dollar

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  Coming into this morning, the US dollar had moved sharply lower all week after the Fed launched its howitzer of measures at the start of the week. The USD need to stay weak to support a reflation narrative so we look at the close today as rather important. Elsewhere, the euro may have a hard time rising after a disastrous EU meeting.


Please consult today’s Quick Take for a great news roundup and setting of today’s market and trading agenda and then today’s Saxo Market Call podcast in which our macro strategist Christopher Dembik picks apart the terrible EU meeting yesterday among other topics.

It is a very important session ahead with the weekend and a likely ugly stream of Covid19 news looming after a week that saw a major bottom posted at the beginning of the week in risk sentiment and a high in the USD. If anything, the USD has moved faster and more in many places, relative to its ascent, than other risk appetite measures. Yesterday’s session looked promising for risk sentiment, but we are already retracing that move aggressively overnight and into this morning.

One of the things justifiably weighing on sentiment yesterday was the terrible EU meeting that has put a hold on any “backdoor debt mutualization via EU coronabonds” narrative for the moment as the traditional ex-France core EU countries remain dead set against mutualization. With Covid19 accelerating here into a peak and economic growth collapsing, when is this crisis sufficiently grave for the EU to get its house in order? Listen to Christopher on the podcast link above on the depths of the dysfunction and the irony of Italy getting help from Russia and China while unable to get more aid from fellow EU nations. Only the heavy hand of the ECB is keeping things in check in financial market terms as Italy-Germany spreads remain orderly after yesterday’s meeting. This was a spooky development for Europe and could keep a lid on the euro for now and then some until we see a more coordinated approach to this crisis in the EU – stay tuned.

We can’t neglect the Covid19 crisis news and still are faced with a rampaging growth in cases in the US that may be slower to slow than elsewhere due to the piecemeal response. As well, do any of know how our economies return to normal and on what time scale – this is still the key risk to general sentiment, authorities’ escalating responses notwithstanding.

Chart: EURUSD
The chart below shows the dramatic roller coaster ride in EURUSD that as of now has merely proven a wild series of gyrations, only to return to the same levels prevailing before the crisis. Volatility will stay high here as the jury is still out on whether the Fed’s measures are enough to keep the world ahead of the global funding situation and whether the market starts to judge whether other countries’ policy moves are on the same level as the US’ policy response. For the euro side of the equation, it is about how long EU leaders can afford to dither while the ECB does what it can to keep  the ship from leaking. The 200-day moving average and the 1.10-1.1100 area in general is an important pivot zone for now to the upside.

Source: Saxo Group

The G-10 rundown

USD – the USD springing back in early European trading today – an important coincident indicator for risk appetite. More policy forthcoming – perhaps with the US Treasury joining in more forcefully – if the USD pulls back to the strong side.

EUR – concerns for the euro and Europe if the EU cant coordinate a more profound fiscal response even if ECB supporting strongly at the margin by having abandoned former rules on purchase allocations across the EU.

JPY – big questions for quarter and Japan financial year-end loom over the end of this month and with JPY crosses providing high beta to the swings in risk appetite. In more normal times, such low long US yields would be more JPY supportive.

GBP – the GBPUSD rally ran all the way to 1.2300 in this epic move off the bottom, but the move may need digestion. The UK government responding strongly on the virus now and has luxury of control over its own money printing!

CHF – the new dip in sentiment weighing on EURCHF again, but with SNB likely leaning against.  Down the road – wondering how Switzerland deals with the aftermath of one of the world’s worst housing bubbles – the script could flip suddenly on the CHF down the road.

AUD – the Aussie rally extended all the way above 0.6100 before a sharp reversal this morning. If risk sentiment can’t stage a recovery, AUDUSD and AUDJPY could post an ugly daily candlestick today.

CAD – the correction all the way to 1.4000 looks overaggressive given the state of oil markets – this is perhaps the first pair to lean against for the USD to bounce back given the oil situation.

NZD – the kiwi back to outperforming the AUD as sentiment deteriorates, and the NZDUSD and NZDJPY moves off the lows were enormous and are up against important resistance on respective charts.

SEK – the 10.90-11.00 zone in EURSEK shaping up as the important pivots. Last nights weak EU meeting no help for the SEK, and the uniquely lax Swedish Covid19 policy response is a high stakes gamble.

NOK – the NOK recovery extended very far considering how weak crude oil prices remain. One support may be that increased fiscal response from Norway requires much larger NOK purchases.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 - US Mar. PCE Inflation
  • 1400 - US Final Mar. University of Michigan Sentiment

 

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

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