FX Update: Yesterday an odd day, a big surprise if it repeats. FX Update: Yesterday an odd day, a big surprise if it repeats. FX Update: Yesterday an odd day, a big surprise if it repeats.

FX Update: Yesterday an odd day, a big surprise if it repeats.

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Yesterday saw broadly weak risk sentiment and a broadly stronger JPY. No big surprise there, rather the surprise was in the resilience of pro-cyclical currencies versus the US dollar, which was no safe harbor in the storm. Hard to believe that this is some new pattern that will persist, but 2022 will have many moving parts in pressurizing and repressurizing risk sentiment, particularly treasury yields, which are pulling back higher at the long end of the curve today.

FX Trading focus: An odd day yesterday as USD was no safe haven

A strange day in FX-land yesterday, as we saw a classic, broad risk-off move across markets that took US long yields a bit lower, US equities sharply lower (interesting discussion around the big cross-currents in equities, by the way in today’s Saxo Market Call podcast) and the JPY higher. What was not “classic” was the resilience in commodities and the US dollar staying mostly weaker against pro-cyclical currencies and even some EM currencies even if it has bounced back a bit in today’s trade. Not sure where to attribute the odd pattern, but would be surprised to see all of those developments extending. US long yields are back higher today after a somewhat mixed message from US treasury auctions over the last couple of days. The cycle highs in longer US treasury yields are not far away and can quickly dominate the narrative again and dominate the narrative for risky assets.

As we watch the USD’s losses since consolidate today, a bit of extra focus on the 1.1400 area in EURUSD and 0.7250 to as low as 0.7200 in AUDUSD as a failure of these levels to hold will suggest that this week’s USD breakdown after the US CPI release on Wednesday was merely a brief squeeze, signifying little or nothing, save perhaps that Fed forward expectations have to break significantly higher for act as a specific driver USD strength.

The USDCAD pair has gone far and fast to the downside since the crude oil market recovered swiftly from its December post-omicron breakout nadir and is now interacting with the psychologically significant 1.2500 area that slow happens to also be the 200-day moving average. Coming up next for the two currencies are signals from their respective central banks, with a hawkish raising of the bar from the Fed likely requiring, for example, calling an early end to QE already at the Jan 26 meeting and possibly indicating that “larger than 25 basis point” hike increments are under consideration. Perhaps too early for the latter, if not the former (what does the last few tens of billions of QE matter besides as a symbol). The Fed is priced to hike to about 1.0% through the December meeting, depending on the barometer. The pricing for the Bank of Canada is less reliable, but it is certainly priced to lead the Fed in hiking this year by around two hikes even if the spread for 2-year yields between the two countries has been relatively flat for over a month, so little new has been priced in on a relative basis recently. On that account, the move lower in USDCAD looks a bit over-extended without new signals from respective central banks. Other factors influencing the exchange rate will include whether oil continues to march to new highs or corrects and risk sentiment, where I suspect extended weakness will begin to offer more safe haven support for the US dollar if long US yields are also on the rise.

Source: Saxo Group

In other news, Japan’s five-year JGB’s have managed to break higher to the highest level in about six years, within a hair’s breadth of the 0% level that last traded before Japan implemented its negative yield policy back at the beginning of 2016. I also note that longer JGB’s have also tracked yields elsewhere higher – is the Japanese market making a bet that the new Japanese government is set to take a different approach to stimulus that will raise prices more durably? Adding EURJPY and AUDJPY to my watch list for break down potential (130.00 to start in EURJPY and 82.00-ish in AUDJPY, which have a strong 40-day correlation, respectively, with EURUSD and especially AUDUSD). In the upcoming Q1 outlook, I have pointed out the incredible divergence in the longer term real effective exchange rate of the JPY (weak) relative to the renminbi (strong) that is on a scale resembling the situation in 2015 when China made a dramatic change to its exchange rate regime that weakened the CNY sharply.

Table: FX Board of G10 and CNH trend evolution and strength.
Important to have a look at the relative strength of the broader CNH before judging that it is significant that USDCNH has traded back close to cycle lows – the CNH is back to trading with low beta to USD direction, a familiar regime. Many other themes are still relatively adrift outside of USD weakness and petro-currency relative strength. A big question mark above the sterling move higher – may wear off soon if this is a “the UK seeing the backside of omicron” premium.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
CNHJPY has flipped negative – suspect that is a megatrend for the coming year. Also note AUDJPY close to flipping negative and EURJPY likely not that far behind in coming days if 130.00 falls there. Elsewhere, watching if the USD breakdown holds here.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1330 – US Dec. Retail Sales
  • 1500 – US Jan. Preliminary University of Michigan sentiment

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


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)

40 Bank Street, 26th floor
E14 5DA
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