Four FX charts: USD comeback needs another leg higher to seal the deal Four FX charts: USD comeback needs another leg higher to seal the deal Four FX charts: USD comeback needs another leg higher to seal the deal

Four FX charts: USD comeback needs another leg higher to seal the deal

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  The USD remains on the comeback trial and has already broken major resistance today in USDJPY, though that pair may prove a poor USD proxy from here. Rather, we focus on the USD status in other pairs, as well as the fresh struggle in sterling and whether US putting Switzerland back on the currency manipulator list means CHF trades more dynamically.


Despite everything the Fed has thrown after the USD liquidity issue into year-end the USD has bounced back strongly from  its week performance into the final days of the year. So far, the comeback has  mostly been about the neutralization of the downside momentum in the greenback, but we are now nearing levels at which the USD reversal becomes a bit more profound and suggests an upside breakout is afoot. Three of the pairs we focus on for that eventuality are EURUSD and AUDUSD, in particular, as well as whether the EM bid versus the greenback is ready  to fade after an incredible run – no real signs of that as that is something that will likely require a halt to the USDCNY slide and easing of EM and risk appetite bid in general.

USDJPY – not the best USD proxy?
USDJPY is the first major pair to garner headlines as it has cleared the local range resistance of around 109.65 and even the psychologically significant 110.00. In today’s FX Market Update, we noted the risk that the signing and publication of the particulars of the US-China trade deal could mark a near term pivot point for markets,  which, if that means a consolidation in risk appetite and the current, unprecedented (at least in recent years) reach for yield, could favour the JPY over the USD even if the latter isn’t particularly weak. 

Source: Saxo Group

EURUSD – eyeing the next leg lower on a break of pivot levels
Since EURJPY and USDJPY show a great deal of directional correlation, we are more  interested in the direction of EURUSD for a view on the USD than USDJPY. By plunging back below 1.1150, the EURUSD reversed the sequence above 1.1200 but has yet to follow through lower, a process that starts with a move below 1.1085 and 1.1066, the two local pivots, though a more profound bear move needs to challenge below the 1.1000 level that found support last November.

Source: Saxo Group

EURCHF – cut loose?
Yesterday, the US announced it was putting Switzerland back on the list of currency manipulator list for the first time since 2018, suggesting that the SNB will be far more constrained in intervening against further CHF strength and a possible wake-up moment for  the market’s assumptions about the currency’s volatility if the upside pressure continues from here amidst complacency. Another angle on CHF is the SNB’s large equity portfolio of some CHF 180 billion, which saw spectacular returns last year and reminds us that the bank is essentially running a huge. This might explain the total lack of CHF upside during the recent aggravated runup in risk appetite. The key test for this notion would be how the franc behaves in a sharp equity market correction scenario – for now we focus on the technical behavior at the new lows for the cycle (note key USDCHF range levels also nearby around 0.9650).

Source: Saxo Group

EURGBP – sterling struggling or not?
Sterling looked ready to struggle to the downside as GBPUSD traded below 1.3000 and EURGBP, shown below, trade toward the top of the recent range – but sterling is hanging in there so far. We have what resembles an upside-down head and shoulders formation here, with a neckline near 0.8600 that we will be keeping an eye on in coming sessions if sterling weakness remains pronounced.

Source: Saxo Group
Disclaimer

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 (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-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 www.home.saxo/en-hk/about-us/awards.

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.