FX Update: Commodity currencies play catch-up

FX Update: Commodity currencies play catch-up

Forex 5 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  The EURUSD has retraced nearly all the way back to 1.2000 and neutralized the downside risk and more powerful momentum has now arrived in commodity-linked FX since yesterday against the big dollar, whether in G10 or in EM, the Russian ruble loudly excepted on new US sanctions incoming. More strong US data expected today, but the reaction to the CPI data earlier this week suggests that the market has already priced strong near-term numbers.


FX Trading focus: Commodity FX plays catchup, rising European yields, US data

The USD is lower again after yesterday’s action, though the action is switching to the more traditionally pro-cyclical currencies, as the G10 smalls and most EM currencies are playing some catchup in rallying against the big dollar. A huge jump in crude oil prices yesterday on a large US supplies draw has helped the commodity space and strong iron ore prices provided some offsetting support overnight for the AUD, which otherwise dipped at one point on a weak March jobs report showing that more than 100% of the net job growth on the month was in part-time positions.

As we noted on this morning’s Saxo Market Call podcast, the global Covid picture is still a concern and the global daily case count is actually not that far below its highest ever as a new wave is exploding in many populous EM’s including India, Turkey and the Philippines. But in Europe, markets seem to be looking beyond the vaccine stumbles as production and availability of the Pfizer-BioNTech vaccine looks set to expand dramatically from here. Certainly, SEK is enjoying a strong run recently on the euro’s recovery, as is its wont. EU yields are picking up as well, with the German 10-year Bund yield pulling back toward the key -25 bps yield in recent sessions. Looking at an article discussing the German Green party’s draft platform (warning: get your Google translate ready if you don’t read German) for the late September election, it is tough to over-emphasize how dramatic a development for the EU it would be to see this party in a ruling coalition, particularly if it has the Chancellorship. On everything from a more pro-EU stance and its opposition to the traditional German principle of fiscal “debt brake” austerity to the geopolitical implications for Russia (anti-NordStream2) and China (human rights concerns). The German polls are certainly on the move.

The core March US Retail Sales number today is expected to show an absurd month-on-month reading of 6%+ as the latest and largest of the US stimulus checks hit in the latter part of March. The recent past has shown how quickly the stimulus effect fades, so the market may look through this data, unless the jump is particularly high and suggests that some of the pent-up savings from the generous stimulus of 2020 and this year are being unleashed. Probably too early for that or for the market to jump to conclusions and the reaction to the hot CPI number earlier this week suggests that the bar is high for reacting to positive US data.

Chart: AUDUSD
The AUDUSD chart and many other USD charts have shown a fairly decisive leg of USD weakness, with commodity FX playing a good deal of catchup with other currencies over the last two sessions. The pair need now merely hold the 0.7650-75 area taken out on the way up to keep the sights on the 0.8000+ top and more. One development that might spoil the party for fresh bullish positions would be a renewed rise in US treasury yields. Iron ore futures in China were AUD-supportive overnight with a fresh surge, and tonight we have Chinese GDP and other data out.

Source: Saxo Group

Odds and ends

US to announce new sanctions against Russia. Anticipation of new sanctions against Russian individuals and entities and against US based investment in Russian sovereign-linked assets saw the ruble sharply weaker this morning. The Biden administration is assessing the sanctions on accusations of interference in the US elections and hacking of US company SolarWinds. The move arrives after earlier this week, the Biden administration seemed to be making friendly overtures on the prospects of a summit with Russian president Putin. Effectively, the whiplash has the net result that we are trading about unchanged from a week ago.

Turkey keeps rate unchanged at 19% as expected and the lira weakened slightly after a modest run of strength into today’s meeting. Not a surprise to see the reference to further rate-tightening removed from the prior statement, but also interesting to see the new statement indicating that the rate will be kept above the inflation rate, nominally TRY supportive in theory, but we have had a run of stabilization into this meeting, we know that the net reserve situation in Turkey is in bad shape, that the central bank will cut as soon as it thinks it sees daylight to do so, and Turkey is suffering an ugly new wave of Covid. I lean for USDTRY testing toward the highs of the cycle near 8.50.

Table: FX Board of G-10+CNH trend evolution and strength
Volatilities are dropping, but the USD is trending lower now until or unless the latest breakdown is reversed. Note that sterling has dug itself into something of a hole as well (suspect some or most of this this an unwinding of the quick vaccination premium). Also interesting to note that Gold has yet to come alive – real inflation in which global real rates under-perform any global rise in nominal yields needed to revive that story.

Source: Bloomberg and Saxo Group

Table: The individual FX Board trend readings
Note a couple of tings here, including the AUDUSD now trending positive after crossing over to positive yesterday – making it crucial for the bulls that the pair holds this break as noted in the chart above. Also note how few trends feature much “age” (number of days a pair has been in its current positive or negative trend state) and that a growing number of currencies are showing weakening intraday volatility (light blue and especially deep blue shading in the latest ATR reading) suggesting a market that is losing energy.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – Canada Feb. Manufacturing Sales
  • 1230 – US Apr. Empire Manufacturing
  • 1230 – US Weekly Initial Jobless Claims and Continuing Claims
  • 1230 – US Mar. Retail Sales
  • 1230 – US Apr. Philadelphia Fed Survey
  • 1400 – US Apr. NAHB Housing Market Index
  • 1430 – DOE’s Weekly Natural Gas Storage Change
  • 1800 – US Fed’s Daly (Voter) to speak
  • 0200 – China Q1 GDP
  • 0200 – China Mar. Industrial Production
  • 0200 – China Mar. Retail Sales

Quarterly Outlook

01 /

  • 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

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

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