background image

FX Update: USD finally pokes back higher as we await US data

Forex 4 minutes to read
Picture of John Hardy
John J. Hardy

Global Head of Macro Strategy

Summary:  We are finally getting a follow up dose of USD strength after the currency spent all of last week consolidating back to the weak side in the wake of the sharp surge from the FOMC meeting of the prior week. The ability of the US dollar to even hold up reasonably well is interesting, given that the market continues to express solid conviction in the transitory inflation narrative. A huge jobs report Friday could challenge that development, even if we all know the wait for a verdict on the outlook extends out well over the horizon.


FX Trading focus: USD firms again, especially against the Aussie

US treasury yields pushed back lower yesterday and the megacaps among US equities celebrated a US judge tossing out two antitrust suits against Facebook yesterday. In general, the shape of Fed expectations that has developed in the wake of the FOMC meeting suggests that the market is recognizing the risk that the Fed will bring forward the start of a tapering of QE purchases and eventual rate hikes, but that the Fed’s “terminal policy rate” will likely prove lower than was expected just a couple of months ago. It all points to a fairly complacent view that an inflationary spiral is unlikely.

The G10 smalls and sterling were the biggest losers on the day this morning versus the USD and a JPY also on the rise, although SEK is trying to pull back against the euro as of this writing despite the fuss over the failed government and uncertainty on the composition of whatever new coalition emerges as parties have four attempts to put together a new coalition of whatever stripes before an election must be called. A similar episode followed the late 2018 Swedish election, but there was no notable Swedish volatility during the drawn out process that ended in the current weak government that has now failed. And given how evenly divided the political blocs are in Sweden according to the polls, the potential for new policy drama is low, although at the margin this uncertainty could keep the Riksbank on the dovish side, although it is doubtful. A Riksbank meeting is up on Thursday, by the way.

The Aussie has been one of the weakest currencies this week due to the struggles with the Delta Covid variant outbreak causing widespread new lockdowns that could theoretically have the RBA choosing the more dovish option of shifting the 0.1% yield cap policy forward to the Nov ’24 bond from the current April ’24 target. While AUD is lower, yield shifts at the front end of the Australian yield curve don’t suggest . I wonder whether background concerns on the trajectory of China and Australia’s trade relationship with that very important country for Australia’s exports may be weighing more in the background than anything else. Regardless, AUDUSD has retraced about half of the way back to the lows of last Monday, as we analyze in the chart below.

The Friday US June jobs and earnings data are the tactical pivot for whether the USD can find the energy for a follow up move higher as some of the complacency noted above on the outlook is eroded. Alternatively, we could end up with another multi-week bout of doldrums. Some minor interest as well, as indicated in this morning’s Saxo Market Call podcast, in the quarter-end up tomorrow and whether US Treasury yield volatility picks up.

Chart: AUDUSD
The AUDUSD chart is similar to a number of other charts of USD pairs in that we have seen a significant USD rally that has yet to either follow through or find itself rejected. Additionally, for this pair we have an unresolved head-and-shoulders-like situation in which the neckline was completed after an extremely wide right shoulder formed in recent weeks. But we have not yet properly breached the neckline. Looking lower, another major prior price point not much further to the downside is the prior major high near 0.7415. If the current complacency about the Fed outlook is shattered by US data or other developments intrude to send risk appetite and/or commodities on a further steep retreat, we could be set for a more major consolidation lower in AUDUSD after the pair has gone absolutely nowhere for more than half a year, possibly one that extends all the way to 0.7000.

29_06_2021_JJH_Update_01
Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength
Note in the broad trend readings for each currency that the JPY has managed to pull itself back into positive territory while the G10 smalls ex CAD are all on the defensive.

29_06_2021_JJH_Update_02
Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
We discussed SEK pairs yesterday, but the most important of these, EURSEK, is still in limbo after failing to stick a lower close yesterday.

29_06_2021_JJH_Update_03
Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1200 – Germany Jun. Flash CPI
  • 1300 – US Apr. S&P CoreLogic Home Price Index
  • 1340 – ECB President Lagarde to speak
  • 1400 – US Jun. Consumer Confidence
  • 2350 – Japan May Industrial Production
  • 0100 – China Jun. Manufacturing and Non-manufacturing PMI

Quarterly Outlook

  • 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