FX Update: EURUSD breaks 1.1000

FX Update: EURUSD breaks 1.1000

Forex 6 minutes to read
John J. Hardy

Global Head of Macro Strategy

Summary:  The USD (and less noticed, the JPY) is riding high, with EURUSD finally breaking the 1.1000 barrier. The prior four breaks to cycle lows since last summer have quickly run out of momentum – to halt the USD rise this time, the Fed will have to swing into gear.


Trading interest

  • Maintaining EURJPY shorts with stops lowered again to 118.00. Targeting 112.00
  • Long USDCAD with stops below 1.3230, for 1.3500+

US markets are closed today for Labor Day.

The latest round of US tariffs went into effect over the weekend with little fanfare, and equity markets gapped a bit lower to start trading this week before recovering back close to unchanged and even better this morning in the case of Europe, as the weak euro boosted sentiment on European bourses. There was almost no further commentary from US President Trump on trade issues over the weekend as his administration is thoroughly distracted by the threat posed by major hurricane Dorian approaching Florida’s coastline and possibly set to grind up a large portion of the Eastern seabord.

China set the yuan fix a mere basis point weaker to open the week and a local resistance area around 7.17 has developed over the last four trading days. One can only assume from the market action that the market remains hopeful of a détente or better and any headline discouraging that  notion will likely prove very negative for risk sentiment.

A series of articles on the “Corbyn Revolution” at the weekend describes Corbyn’s plans for a transformation of UK policy to drive a reduction in inequality and a more or less comprehensive reversal of Thatcher reforms. Interesting to note that his first impulse is not to go after a “People’s QE” and the MMT rout, instead looking to actually fund his platform with new taxes. This opens up a downside path for sterling even from these levels if Boris Johnson’s gambit to deliver Brexit and win the next election fails.

Chart: EURUSD
EURUSD has spilled over the new lows once again – this is the fifth time we have seen a new cycle low since last August. Note that on the prior four occasions, the price action quickly reversed within one to three days, even if the overall trend has remained lower. Whether this time will see a repeat of this established pattern will likely depend on signaling from the Powell Fed. Until then, the path to 1.0800 to 1.0750 is now open and the next immediate test for euro sentiment is the September 12 ECB meeting. One psychological risk here is that the break of 1.100 could see hedgers and traders that have sat on the sideline forced to jump in on fears of missing the move, as they may have been complacent on the assumption that the price action of the last year and more would persist.

Source: Saxo Bank

The G-10 rundown

USD – the USD upside continues until the Fed finally decides to go big enough to get ahead of the curve – the move needed to get ahead of the curve increases in proportion with global risk sentiment. A forceful move from the Trump administration is the only other option that can move the needle. So far, Trump has been all tweet and no intervention on currency policy.

EUR – the actual break of 1.1000 may have been the market merely playing catchup with USD action elsewhere and the psychological (and actual) barrier that 1.1000 provides. The risk here is that the market is complacent about downside, assuming that this break will prove like the prior four and not immediately lead to a further slide – so if the price action sticks lower, traders and hedgers may have to rush in on a fear of having missed the move.

JPY – a very passive performance from the yen here, and likely needs broad risk off to match the US dollar in strength. The BoJ’s reduction of bond purchases to slow the decline of yields is yen-supportive as well here.

GBP – sterling will have a hard time sustaining a break down through 0.9000 unless both the outlines of Brexit become clearer (and not too hard) and that elections won’t results in a “Corbyn revolution”.

CHF – low yields and weak Euro keeping EURCHF trading heavily – note that the USDCHF resurgence on USD strength approaching key resistance (local highs and 200-day moving average around 0.9950) that could drive flow on a break.

AUD – a minority looking for an RBA cut tonight and if not, at the October meeting. The GDP print on Wednesday looks possibly more interesting for driving flow.

CAD - Canada’s Q2 GDP print surprised strongly at the headline, but this was heavily trade driven and other measures are cause for concern, particularly the weakest consumption in some seven years. We still see the risk that the Bank of Canada tilts more to the dovish side than currently priced and USDCAD technically interesting on an upside break.

NZD – the kiwi struggling for air and we keep an upside AUDNZD view with significant short term volatility risk this week over key Australia event risks.

SEK – Sweden is tilting toward a recession with a negative policy rate – not much to like except valuation is very cheap and any fiscal signals would likely prove a positive catalyst – especially from Sweden, but also from the EU.

NOK – positive mood in markets and focus on EUR weakness sees EURNOK pulled back to the key 10.00 area.

Upcoming Economic Calendar Highlights (all times GMT)

  • US Market Closed  for Labor Day
  • 0715-0800 – Euro Zone Aug. Manufacturing PMI
  • 0830 – UK Aug. Manufacturing PMI

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • 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

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

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