FX Update: War impacts mounting in FX. FX Update: War impacts mounting in FX. FX Update: War impacts mounting in FX.

FX Update: War impacts mounting in FX.

Forex 4 minutes to read
John Hardy

Head of FX Strategy, Saxo Bank Group

Summary:  Currencies outside of the Russian ruble have once again traded with muted volatility relative to the scale of the impact in other markets. But as the European session proceeds today, the impact seems to be mounting, as safe haven seeking in the USD and JPY predominates, while the negative reaction in the euro has Still, currencies are by no means the center of attention as we watch how the situation unfolds, particularly the shape of coming sanctions from Western powers.


FX Trading Focus: FX reacts to war in Ukraine

Russia shocked the world by moving against Ukraine in the air and on the ground, with a massive impact across markets, if less overwhelming in currencies. The Russian ruble cratered nearly 10% overnight, with the Russian central bank possibly defending the 90.00 level in USDRUB, with that exchange rate back below 84.00 as of this writing after the central bank promised emergency measures and intervention to shore up the ruble.

The US dollar and the Japanese yen are jockeying for safest haven status, with the greenback winning out as the day progresses in Europe. But the safest of all safe havens here is the hardest of currencies: gold. The euro has dropped well over a percent lower versus the USD as the cycle lows below 1.1150 are suddenly not that far away and will inevitably crumble if the fallout continues across markets – 1.1000 is the next focus area there. Other currencies are reacting along the lines of their traditional sensitivity to risk sentiment, if to a surprisingly muted degree. The Aussie has been particularly surprising in its relative resilience, as noted before, and it is noteworthy that oil-sensitive currencies are getting no support from developments as Brent Crude soars well above $100 as the focus is purely on liquidity and risk sentiment.

Things are very fluid right now and can certainly worsen further. China has declared that it understands Russia’s security concerns, from which we can infer that Russia will not find itself diplomatically isolated by major powers outside of the US and its more overt allies. As noted in this morning’s Saxo Market Call podcast, the most important next step for markets on top of the unfolding situation on the ground in Ukraine is the shape of the next round of Western sanctions against Russia and the degree to which these impact actual Russian commodities exports, as energy security has already proven a critical issue this winter in Europe on the slowing of Russian gas deliveries. The history of sanctions stretching back to the post-Crimea invasion in 2014 has been one of boxing Russia in and making life difficult for some, but has never really impacted the actual delivery of commodities to Russia’s trading partners. Deepening sanctions at this point, if they are to impress and have a real negative impact on Russian interests, will almost certainly mean a negative impact on the EU economy and global economies via inflation.

In any case, the situation has already delivered a fresh inflationary impulse in oil and food (Ukraine a significant wheat exporter and wheat prices are limit-up in US exchanges) and that will wear quickly on real GDP growth and limit the willingness or ability for central banks to tighten rates much as growth craters, even if inflation soars anew.

More in Steen Jakobsen’s latest Macro Digest.

Chart: EURJPY
Watching JPY crosses here as the JPY has generally trade weakly of late as investors have focused on Bank of Japan defending its yield-curve-control and the widening yield spreads against Japan’s favour punishing the JPY. As well, Japan is dependent on imported energy and other commodities, but on the other hand, investment flows often are the driver for significant moves in the JPY. If the  latest developments change the psychology for Japanese investors and their massive savings invested around the world, we could be in for a significant squeeze on JPY shorts on repatriation flows. This Ukraine situation has arrived, after all, with the JPY trading at all-time lows in real-effective, CPI adjusted terms. Meanwhile, the Ukraine situation and impact of sanctions risk impacting Europe more directly than any other major economic bloc, which is why we pair the JPY versus the Euro and watch the big range support below 127.50 in the likely event it comes into view.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
FX Trends becoming more pronounced with the latest moves, as the JPY and USD firm more, the euro and Scandies drop badly. Note the extreme strength in the precious metals here.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Hard to see how headlines can reverse the trend here – note GBPUSD flipping negative today, with AUDUSD and NZDUSD still in surprising uptrends (a USDCNH effect at work there?)

Source: Bloomberg and Saxo Group

Today’s Economic Calendar Highlights (all times GMT)

  • 1315 – UK BoE Governor Bailey to speak
  • 1330 – US Jan. Chicago Fed National Activity Index
  • 1330 – US Weekly Initial Jobless Claims
  • 1330 – US Q4 GDP Revision
  • 1400 – US Fed’s Barkin (non-voter) to speak
  • 1500 – US Jan. New Home Sales
  • 1530 – US Weekly Natural Gas Storage Change
  • 1600 – US Weekly DoE crude oil and product inventories
  • 1600 – US Feb. Kansas City Fed Manufacturing Index
  • 1600 – ECB’s Schnabel to speak
  • 1610 – US Fed’s Bostic (non-voter) to speak
  • 1700 – US Fed’s Mester (voter) to speak
  • 1800 – UK BoE Chief Economist Pill to speak
  • 1945 – New Zealand RBZN Governor Orr to speak
  • 0100 – US Fed’s Waller (voter) to speak

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

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

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.

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.