Complacency halts USD, JPY rise Complacency halts USD, JPY rise Complacency halts USD, JPY rise

Complacency halts USD, JPY rise

Forex 7 minutes to read
John Hardy

Head of FX Strategy

Summary:  The recent strength seen in the dollar and the yen has been reined in as risk appetite surges.

Late last week, the spectacular comeback in asset markets from their late-December lows finally appeared to be rolling over – conveniently so, as the major US indices were testing their 200-day moving averages. But Friday’s session was a harsh rejection of that notion as the US equity market came roaring back.

US-China trade talks don’t appear perched on the verge of a breakthrough (and any likely deal seems mostly priced in) and there were no sufficiently impactful data points to drive the comeback. The one clear positive fillip for equities was the European Central Bank's Coeure on Friday airing the idea that there is scope for the ECB to do another TLTRO operation, but the price action seemed to suggest a squeeze on short positions as the major US indices pulled to new highs since early December.

We struggle to understand how the current market ramp, which almost impossibly coincides with a persistent bid in safe-haven assets like core EU bonds and US Treasuries, can extend much longer. Sure, one last flurry of strength on a positive trade deal headline might offer an additional modest, one-off boost. Eventually, however, with global liquidity tightening on the US Treasury’s issuance blitz and the Fed’s QT, it is simply not possible to maintain a simultaneous bid in risky assets and US Treasuries – either bonds falter and eventually provide their own headwinds for risk appetite or risk appetite rolls over again.

This week, we focus on the Federal Open Market Committee and ECB minutes up Wednesday and Thursday in particular and on the Eurozone flash February PMIs on Thursday. Meanwhile, equity market technical and animal spirits remain firmly in focus all week, particularly our notion that either Treasuries or equities must soon fall steeply. Note that US markets are closed today for a holiday.

Trading interest

Short EURUSD: still prefer the downside in EURUSD, perhaps given the tactically frustrating price action, with exposure via put options – 1.10 for four months takes us to the other side of EU parliamentary elections.

Short AUDUSD: given the lack of momentum, either patience is required for a fresh sell-off wave to arrive or the expression of a view in two-month or longer put options.

Short EURJPY: trade here via options (put spreads for one month or longer in case price action lower is halting) as the local price action has proven impossibly choppy and rangebound and the timing of a return of weak risk appetite difficult to discern. 


The latest downside break attempt through 1.1300 was corralled on Friday , but the downside remains the focus, given the weak Eurozone outlook as we await a close below the range low of 1.1216 for signs of mounting downside momentum. Downside exposure via options still attractive as implied volatilities are quite low relative to historic averages – currently just above 6.5% for three-month options.
Source: Saxo Bank
The G-10 rundown

USD – further risk-on without a notable rise in US yields is the goldilocks scenario for USD bears, but we have a hard time believing that current conditions can persist for long.

EUR – seems the euro is set to perform poorly indifferently under almost any scenario as the prospects for the ECB easing are returning. ECB minutes may reveal more on that front, and the market will closely watch the Thursday flash Euro Zone PMIs for February. As if that wasn’t enough, tariffs on European cars for the US market are a risk.

JPY – what does a yen trader do with safe haven bond bid and super-strength risk appetite? Given our expectation that current market conditions can’t persist for long, we like exposure to JPY upside via options.

GBP – sterling easing back higher as the market edges the odds higher that the worst outcome for sterling will be a delay of Brexit if Parliament moves next week to take more control of the Brexit process in a an amendment vote to avoid a no-deal.

CHF – the idea of fresh ECB easing keeps EURCHF from moving higher on the back of stronger risk appetite, and USDCHF dips away from the range highs.

AUD – the risk-on vibe, led by a a parabolic ramping in Chinese mainland equities, is keeping the AUD certainly firmer than it would be otherwise. The AUDUSD focus is lower, though bears will find it uncomfortable if the price action backs up above 0.7200. RBA minutes up late tonight and jobs data up Thursday.

CAD – oil and risk appetite supportive of CAD, but the recent bullish reversal in USDCAD keeps technical focus higher for now – price action below 1.3150 there would begin to stress that view.

NZD – the kiwi priced for perfection – not sure where the catalyst is to spoil the picture as we watch whether AUDNZD can explore the last shreds of the longer-term range toward parity.

SEK – the market second guessed the Riksbank’s attempt to keep a (relatively) hawkish stance on its guidance last week, but strong risk appetite and an easy ECB keeping new highs in EURSEK at bay for now.

NOK – fresh strong highs in crude oil keeping a bid under NOK and EURNOK looks lower as long as the throwback rally to 9.84 is intact.

Upcoming Economic Calendar Highlights (all times GMT)

00:30 – Australia RBA Minutes

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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 (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.