FX Update: Markets remain in a bad place even as Fed fails to pile it on. FX Update: Markets remain in a bad place even as Fed fails to pile it on. FX Update: Markets remain in a bad place even as Fed fails to pile it on.

FX Update: Markets remain in a bad place even as Fed fails to pile it on.

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Markets tried to put together a rally on hopes for a Russia-US summit taking place, but nothing has so far been confirmed and markets are slipping back into a funk after a weak close on Friday, with FX providing little in the way of compelling narratives outside of clear safe haven seeking in the Swiss franc. The latest noises since late last week from the Fed suggest that some Fed members are content with the market pricing a series of rate hikes this year, if not a fifty basis point move in March.

FX Trading Focus: Geopolitical fog, Fed content with

I dedicated most of my update last Thursday to discussing the sentiments and ideas expressed in a piece by the influential Zoltan Pozsar, who aired the idea of the Fed focusing on equality and pressuring asset markets as a way to suppress services inflation rather than simply lurching into a string of rate hikes that won’t do anything to address the goods inflation that was kicked off by supply chain constraints and risk merely bringing sharply forward the next recession. From comments on Friday from key Fed officials, it looks like Pozsar’s voice is a random one in the wilderness so far: Vice Chair Brainard said she though it would be appropriate a string of rate hikes at the March meeting and do “runoff” of the balance sheet “in the next few meetings”. Meh – this is about where the market is anyway. The NY Fed’s Williams (voter) made similar comments and specifically pushed back against the idea of a 50 basis point move at the March 16 FOMC meeting. So at this point, outside of St. Louis Fed president Bullard, there is no general sense of fresh Fed urgency to catch up with the curve. In a meeting with some colleagues and friends far more enlightened than I am, the plausible idea was forwarded that some of the Fed rhetoric, even from Powell himself, suggests that the Fed is simply content to see a solid pace of future tightening priced into the forward curve and feels that this is already delivering a tightening, even as the Fed mysteriously failed to cut QE short and will be adding to the balance sheet for another couple of weeks.

There are two things to consider here as we await the next steps from the Fed: first, is the degree to which US yields are being held down by geopolitical tensions linked to Ukraine and Russia’s intentions there and second, that the bar is now much lower for Chair Powell himself to surprise again on the hawkish side, if he feels compelled to do so. (Arguably, that chance was lost in not cutting QE short as noted above.)

By the way, ahead of the FOMC meeting on March 16 we are awaiting the following: this Friday’s Jan. PCE Inflation data point, overdue semi-annual testimony from Fed Chair Powell before Congress (still not on schedule – has never been this late that I can recall….), next Friday’s Feb. jobs report and then the Feb. CPI print on

Otherwise, observing this market is extraordinarily difficult with the overlay of geopolitical concerns and currencies are not the center of the action, though we are seeing the US dollar coming back slightly bid today on the fresh “risk off” with the JPY also firming again and USDJPY below tactically pivotal 115.00. Above all the Swiss franc is seeing the most strength with the current backdrop (more below on that).

US markets are closed today for the Presidents Day holiday.

The market remains extremely alarmed by the situation in Ukraine and Russia’s intentions there, with EURCHF seemingly the purest proxy for market sentiment connected to the situation there. As well, EU yields have reversed hard back lower after their recent breakout. Suddenly, after poking at 1.0600, the action has slammed back south of 1.0400 and could take aim at the cycle lows of exactly 1.0300. Given the source of concern, would expect the SNB to put up a rather stout defense if the cycle lows are challenged.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
The strong gold trend continues, with CHF picking up a bit on safe haven seeking, while the odd-ball strong sterling also continues, with risk-vulnerable Scandies weak on the European angle of the current geopolitical tensions.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
A number of possible trend changes in play, as USDJPY showing signs of rolling over, if still within prior range, while the EURUSD up-trend never blossomed and we are awaiting next steps after the fresh stagnation (arguably, the same thing as USDJPY is showing inversely). Also watching EURJPY for a proper trending move to the downside.

Source: Bloomberg and Saxo Group

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.