FX Update: Currencies shrug off inflation data, flash risk off pattern. FX Update: Currencies shrug off inflation data, flash risk off pattern. FX Update: Currencies shrug off inflation data, flash risk off pattern.

FX Update: Currencies shrug off inflation data, flash risk off pattern.

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  The Swedish krona initially jumped yesterday on a very hot August inflation print from Sweden, but backtracked after the weaker than expected US CPI data. This morning, sterling has entirely ignored the highest UK inflation readings in nine years, a sign that the market is unwilling to react consistently to relative inflation data when risk sentiment swings suddenly dominate the landscape.

FX Trading focus: Risk sentiment correlations dominate as inflation data largely shrugged off

A weak August US CPI print yesterday, with the core month-on-month cooling all the way to +0.1% vs. +0.3% expected, should have triggered a weaker US dollar and driven at least a modest rise in risk sentiment on the implications for Fed policy if the market was heavily anticipating this release. Instead, while we got a brief knee-jerk reaction in that direction, risk sentiment weakened anew in and the USD and especially the JPY rose as US treasuries rallied. That suggests that the market wasn’t particularly invested in the implications of this release and the evidence elsewhere suggests that inflation is less on the brain than other factors. In Sweden yesterday, for example, a very hot August inflation print failed to sustain the SEK rally (importantly as EURSEK 200-day moving average was tested yesterday) despite that number and the highest anticipation of the Riksbank eventually moving to hike rates for the cycle, once risk sentiment weakened later in the day. SEK defaulting to quickly to reacting to a still fairly modest swing in risk sentiment is a fairly feeble performance.

Likewise this morning, where the hottest UK inflation level in over nine years (3.2% year-on-year and 3.1% for core year-on-year) failed to reverse any of yesterday’s reversal in sterling from strength to weakness noted in the GBPJPY chart below.

One day of risk off does not a new trend make, but yesterday’s action requires a nimble stance on the potential for a deepening rout in risk-correlated trades if US data, concern about the implications of Chinese policy moves (note Evergrande behemoth moving toward a more official restructuring) and/or options expiries into Friday in the US could mean volatility remains high here at least in the near term.

Chart: GBJPY
One of the more interesting technical developments yesterday was in GBPJPY, which went from poking toward a break-out above the Ichimoku cloud that has clearly provided resistance of late and to new 1-month highs to a vicious reversal back lower as US treasury yields dropped in the wake of the US CPI release and the JPY rallied smartly amidst generalize weak risk sentiment. Will have to see how the situation develops further from here – particularly for the JPY around the upcoming Japanese election, but the structure of the chart is rather compelling if the price action bites lower, especially if the neckline-like area of the significant head and shoulders formation comes into view below the 200-day moving average (currently 149.50). The neckline is a bit poorly defined but is at around 148.50 at the lowest. JPY traders should always have one eye on USDJPY as well, where a break of the 109.00 area could generate considerable volatility across JPY crosses.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength
CAD is limping despite high oil prices and ahead of today’s Canada CPI data, quite a contrast with NOK, which is coming back bid in the wake of the Norwegian election and despite yesterday’s wobble. Note the firm CNH as banks have been told that Evergrande won’t pay interest on debt next week.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
Sterling pairs yesterday went from tilting into breakouts to the upside to rather significant bearish rejections, in the case GBPUSD and GBPJPY. Gold is trying to flip higher for the umpteenth time, but needs to break chart resistance to signal interest – just as EURUSD needs to close significantly lower, at least below 1.1750, to signify fresh downside pressure.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 0900 – Euro Zone Jul. Industrial Production
  • 1230 – ECB’s Schnabel to speak
  • 1230 – US Sep. Empire Manufacturing
  • 1230 – US Aug. Import Price Index
  • 1230 – Canada Aug. CPI
  • 1300 – Canada Aug. Existing Home Sales
  • 1315 – US Aug. Industrial Production / Capacity Utilization
  • 1500 – ECB's Lane to speak
  • 2245 – New Zealand Q2 GDP
  • 2350 – Japan Aug. Trade Balance
  • 0130 – Australia RBA Bulletin
  • 0130 – Australia Aug. Unemployment Rate / Employment Change

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 is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited 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

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

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

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.