FX Update: Well that didn’t take long.

FX Update: Well that didn’t take long.

Forex 3 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  Markets tried to dramatically extend the relief rally yesterday as the US debt ceiling issue has cleared up for now and on the hope that the energy price crisis will fade, but then crude oil prices rushed back toward the highs and US yields rose to new local highs. Cue the US September jobs report later today, which could drive a fresh bout of USD strength if solid payrolls growth, and further signs of rising wage pressures, drive an additional boost US treasury yields out the curve.


FX Trading focus: Well that didn’t take long. US jobs report on tap.

The “goldilocks” idea I floated yesterday only lasted a matter of hours, as the relief from the natural gas price reversal in Europe only spread into crude oil prices briefly before the latter ripped back toward the cycle highs. Further capping risk sentiment was a sharp rise in US treasury yields, which rose to new local highs ahead of today’s important jobs report. The boost to US yields saw the JPY falling fast. No big surprise there, as USDJPY trades into 112.00 again and may be ready for a sprint higher into the next major chart zone toward 114.50 if we get a potent jobs report that sets yields on the path to challenge the cycle highs (for example, the 1.75% area in the US 10-year).

As noted in this morning’s Saxo Market Call podcast, I will focus closely on the average hourly earnings data in today’s report after the last several months have shown elevated readings suggesting that earnings are rising at a greater than 5% clip. Any nonfarm payrolls change reading well north of the expected 500k plus an Average Hourly Earnings reading higher than 0.4% month-on-month today without an accompanying drop in the average weekly hours could add some urgency to the Fed’s tapering decision and pace at the early November meeting. The latest FOMC minutes are up next week and should add some further color on the state of Fed thinking heading into this jobs report.

It's an important day and close to the week for the US dollar, which has faltered in places even while maintaining the EURUSD downtrend and seeing USDJPY tickling the top of the range today. USDCAD is in an entirely different place as it pushed lower toward the critical 1.2500 area on the oil price rise, AUDUSD continues to eye pivotal local resistance at 0.7300 and GBPUSD the significant resistance zone in the 1.3600-50 area. If the data is indifferent relative to expectations and yields trade sideways or lower and risk sentiment continues to recover, the US dollar could be in for a significant breakdown versus the stronger batch of currencies. A jolt higher in US yields is the more interesting test of USD sentiment however – likely supporting further upside in USDJPY but perhaps only upside against the other currencies noted above if the higher yields spook risk sentiment at the same time. I will follow up early next week.

Chart: USDJPY weekly
Further upside is the logical scenario here if we get a strong US jobs report today that drives a further boost in yields. As noted above, the next key area for USDJPY is up into the 114.50. A terrible jobs report today and sudden cratering in yields would likely be needed if the USDJPY is to be tamed within the prior range.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength
As noted above, the US data today is interesting for whether the US dollar can establish a broader direction, as the current poles at the moment are the EUR, SEK and JPY on the weak side and the oil currencies on the strong side.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
Quite a number of USD pairs are poking into key levels beyond which the USD breaks down – AUDUSD has already flipped positive according to the FX Board trend logic, but the chart needs a hold into the weekly close above 0.7300. Elsewhere, note that even the heavily pressured NZD this week is trying to flip back higher versus the JPY as yields rise anew.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1100 – UK Bank of England Quarterly Bulletin
  • 1205 – US Secretary of Treasury Yellen, ECB President Lagarde speak at B20 event in Italy
  • 1230 – US Sep. Change in Nonfarm Payrolls
  • 1230 – US Sep. Unemployment Rate
  • 1230 – US Sep. Average Hourly Earnings
  • 1230 – Canada Sep. Net Change in Employment / Unemployment Rate
  • 1300 – ECB's Panetta to Speak

Quarterly Outlook

01 /

  • 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...
  • 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 ...
  • 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.