FX Update: ECB comments raise July ECB hike odds.

Forex 4 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  Comments from ECB member Guindos this morning suggest that rate lift-off for the ECB could occur as soon as July, helping to boost the euro. That seemed to impress the market far more than the debate between the two contenders in the French presidential election run-off, as the odd continue to widen in favour of the incumbent Macron, which also supports the euro. Elsewhere, CAD jumps on a hot CPI number.


FX Trading focus: The euro gets a strong boost from ECB comments, CAD jumps

In my last couple of updates, my focus was on whether the euro is set to jump early next week once the hurdle of the French Presidential Election run-off this Sunday is behind us. We have seen signs this week that the EURCHF is front-running the election result as odds widen in favour of the incumbent Macro after a few weeks of nervousness on Le Pen’s chances that have likely suppressed EURCHF’s upside potential (upside pressure on EURCHF is supported by the massive widening of yield spreads in the euro’s favour since early this year). Last night’s debate and consensus view that Macron won it have done little to alter the odds for Sunday – perhaps marginally improving his likely margin of victory.

The euro rallied this morning due to comments from ECB member Guindos, who argued in favour of a July ECB rate hike if the data are supportive. This has short EU yields back at the highs of the cycle as the market sharply raises the odds (now strong favourable) that July sees a 25 basis point hike and with more tightening out the curve. The market is even pricing better than even odds that we see a positive ECB rate by year end. As the comments are from Guindos, an ECB member that has historically been relatively neutral on the dove-hawk spectrum, the comments carry perhaps a bit more weight than usual.

Chart: EURUSD
We recycle the EURUSD chart from yesterday, with today’s rally adding to the sense that the pair is trying to post a reversal after rejecting the price action below 1.0800 recently, carried higher today far more by ECB comments that are raising anticipation of more and earlier policy tightening this year. The sharp backfilling of the move after the price action was taken well above 1.0900 is a bit of a disappointment for the bulls here tactically. Assuming Macron is set for a solid victory in the run-off election for French president on Sunday, it will be interesting to see whether that event risk moving into the rear-view mirror helps unleash more euro buying early next week, and how broadly (for example, only a bit of EURCHF upside or also EURUSD, EURGBP, etc.). A solid confirmation of the bullish reversal would be a move and close solidly above 1.1000, while the zone up to pivotal 1.1185 area (major cycle low once revisited before the Ukraine war) needs retaking to suggest a more structural shift to a bullish stance. Besides this weekend’s political hurdle in France, the next major event risk is the May 4 FOMC meeting. Interesting to note that the March 16 FOMC meeting saw a EURUSD rally attempt even as Fed expectations were adjusted higher in the wake of that meeting.

Source: Saxo Group

CAD jolted higher by stronger than expected CPI. The Canada March inflation level rose more sharply than expected, with the headline CPI measure printing +1.4% month-on-month versus 0.9% expected, and the year-on-year CPI at +6.7% versus 6.1% expected. The “Core-Trim” year-on-year measure was likewise at a new multi-decade high of +4.7%. The Canadian dollar rose sharply on the data as the market priced in more tightening from the Bank of Canada, which is now almost fully priced to hike by 50 basis points at all of its next three meetings, with the policy rate tightening continuing to outpace the Fed and at nearly 3.0% by year end. As well, Canadian home prices rose at an 18.4% year-on-year clip in March, matching the fastest pace of house price appreciation for the cycle. Inevitably, the monster rise in Canadian yields will tame housing over the next 12 months, but this will add to the BoC’s sense of urgency. USDCAD could yet get stuck again in this sticky 1.2400-1.2500 area if the USD isn’t selling off more broadly, or at least until after the May 4 FOMC meeting, which many are likely waiting for before making a decision on USD direction.

NZ Q1 inflation comes in slightly below expectations although still at the highest in over 30 years, with the year-on-year headline CPI at 6.9% versus 7.1% expected and the quarter-on-quarter rise at +1.8% versus +2.0% expected. The NZD was marginally weaker after spiking lower, with AUDNZD trading just shy of the key 1.1000 at one point before retreating.

Table: FX Board of G10 and CNH trend evolution and strength.
CAD is rising to the top of the heap, while CNH weakness remains notable, and the CHF downside momentum risks picking up after the French Presidential election run-off this weekend.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Outside of CAD, the commodity “overlay” is not performing particularly well, as gold is on the verge of flipping to negative, silver is already trying to do so today. Note the big move in EURCNH and USDSEK having a look at flipping lower on the resurgence in SEK we noted yesterday.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – US Apr. Philadelphia Fed Survey
  • 1230 – US Weekly Initial Jobless Claims
  • 1300 – UK BoE’s Mann to speak
  • 1630 – UK BoE Governor Bailey to speak
  • 1700 – US Fed Chair Powell and ECB President Lagarde on IMF Panel
  • 2330 – Japan Mar. National CPI

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

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
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 is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo 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 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