FX Update: Overbaked expectations for imminent Powell put?

FX Update: Overbaked expectations for imminent Powell put?

Forex 3 minutes to read
John Hardy

Head of FX Strategy

Summary:  It appears that market concern may be rising on the willingness of the Fed to deliver any fresh signs that it will push back against the recent rise in bond yields, although it must be said that further pressure higher in yields is absent today after a significant uptick yesterday. In any case, the appearance by Fed Chair Powell should reveal a good deal about market psychology today if he fails to deliver any hint of concern.


FX Trading focus: market nerves fraying ahead of Powell appearance

Later today Powell is set to appear at an event hosted by the Wall Street Journal, one that will include a question and answer session. It is difficult to read if the market is concerned that the Fed is unwilling, this early in the game, to signal any willingness to signal an eventual easing if the “treasury beatings don’t stop”, so to speak. As I have outlined before, a yield-curve-control policy has profound implications, as it would see the Fed effectively losing control of its balance sheet and be seen as a blank check for the government to spend at will with “no consequences” save for a likely mess longer term for the Fed and the government to both deal with as inflation soars and the US dollar tanks. I was set to write further on this when our CIO Steen Jakobsen weighed in with a comprehensive Macro Digest on this very matter – with which I fully agree – please have a read.

So tomorrow I will offer a post-Powell wrap, while today I would just like to point out that the chief thing going in FX, as per Steen’s article above, is the drop in Gold, as well as the drop in the Swiss Franc and Japanese Yen, both of which sold off further today. Clearly there is a link between their very low policy rates and yields in general, and gold and real interest rate rises of late. In FX, the JPY and CHF are likely to serve as coincident indicators for concerns that real yields are set to rise further from here. We’ve certainly seen a considerable repricing of CHF that may be over-baked short term if yields consolidate, but has reset the EURCHF and USDCHF charts to strategically neutral at minimum.

Graphic:
The graphic below is from my old FX Tradeboard, which shows the trend strength in the G10 currencies (a proprietary measure of the strength of the short- to medium term trend and scaled to an exponential moving average of the recent trading range). Many FX pairs have traded in both directions recently, showing less pronounced trend signals for the majority, but the weakness in JPY, CHF and Gold really sticks out!

Source: Bloomberg and Saxo Group

Chart: USDCHF
USDCHF has been on the move recently and has now challenged above the 200-day moving average, quite an achievement off the massive lows below 0.8800 right at the beginning of the year. Is this chart being reset for the longer term to neutral at worst? As long as the Fed avoids going whole hog on yield-curve-control and gold is on the defensive and real rates continue to rise, the franc may prove one of the weakest currencies in the G10.

Source: Saxo Group

Upcoming Economic Calendar Highlight (all times GMT)

  • 1330 – US Initial Jobless Claims
  • 1500 – US Jan Durable Goods Orders
  • 1500 – US Jan Factory Orders
  • 1705 – Fed Chair Powell Discusses the U.S. Economy
Disclaimer

The Saxo Bank 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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)

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) and Type 3 Regulated Activity (Leveraged foreign exchange trading) 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.