background image background image background image

FX Update: Risk appetite rolls over

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The JPY cross rally was tamed by a turnaround in risk sentiment yesterday. Today’s focus for the US dollar squarely on Fed Chairman Powell’s testimony in Washington. Elsewhere, the Brexit endgame sees sterling surge as Corbyn open for idea of second referendum and May talks delay.

Trump lauded the equity market performance since the 2016 election just as the market was surging to a new high near opening hours yesterday, likely linked to hopes from the weekend that the US and China are ready to hammer out deal terms in the coming weeks. Alas, the price action quickly turned around and the US session closed on a sour note yesterday with further selling overnight.

The busy President Trump’s complaint about the price of oil yesterday, meanwhile, seemed to inspire a deep sell-of in energy markets, but we suspect that these were soft for a correction anyway, with prior complaints about the price of oil from the Tweeter in Chief not showing any consistent impact on the market. In currencies, the general reaction was along the lines one would expect, with oil-sensitive currencies, especially CAD, weak on the session and the rally in JPY crosses tamed once again, just as breaks of resistance were unfolding. Trend trading in this market has largely been a lost cause in recent history.

The most independent mover among major currencies was sterling, which rallied again and is now challenging the long-established lower range in EURGBP after Labour leader Jeremy Corbyn yesterday voiced support for a second Brexit referendum if the right terms for Brexit can’t be achieved and Prime Minister May was out talking up an article 50 delay to avoid parliament taking more control over the process tomorrow with an amendment to avoid a No Deal exit at the March 29 deadline.

The chief focus for the day will be on Fed Chairman Powell, where the bar looks very high for dovish surprises, given how far the market has swung in its expectations for the Fed. In fact, given the heavy criticism Powell has faced, he may take a rather defensive posture to push back against the idea that the Fed will always wax dovish as long as markets push them sufficiently hard into doing so.

Trading interest

Tactical interest for trading USDCAD spot on the long side if the price action stays above 1.3150. 
Previously, we have discussed AUDUSD shorts, and we need a sell-off bar or two to take the price action back well below 0.7100 for encouragement that downside remains the side of least resistance.
For downside potential in JPY crosses, we would look for a weak close in EURJPY today below about 125.50 for establishing short positions with stops above the 126.30 high.


USDCAD executed a fairly sharp comeback from the very weak closing bar from Friday, a fairly strong sign of support. The bulls will likely receive further fuel for a rally if risk appetite finally rolls over again and the oil market pokes around for new support. A firmer sign for a test-of-top scenario would be a solid rally bar that takes us back to the 1.3375 resistance. 
Source: Saxo Bank
The G10 rundown

USD – again, suspect that we are overpriced for the implications of the Fed’s dovish shift and a roll-over in risk appetite has us leaning for USD upside. 

EUR – a very weak election for the Five Star Movement in Sardinia, where support for the party dropped by two-thirds. Is the support for a populist stance fraying? This is a key question ahead of the late May EU Parliament elections. For now, German 10-year Bund yields poking below 10 basis points this morning – speaks volumes about the outlook for the EU economy. 

JPY – JPY crosses weakly mimicking the latest ups and downs in risk appetite. Market may be reluctant to go notably long JPY until notable carry trades (read: EM) and risk appetite generally are under pressure.

GBP – sterling bulling up to the range extremes in EURGBP and GBPUSD – do we get enough information value from the next couple of days to drive an extension higher still? Sceptical…

CHF – EURCHF volatility virtually nonexistent and USDCHF pausing right at the parity area.

AUD – the recent one-day sell-off on coal shipment worries was erased but we’re too embedded in the range to extract any significance from that as we await a bigger theme to develop.

CAD – a smart rejection of the Friday sell-off bar in USDCAD has us constructive at least within the range for more upside towards 1.3350+, especially if the oil market correction cuts deeper. Canada CPI for January up tomorrow and December and Q4 GDP up on Friday.

NZD – pesky kiwi stays bid but may soften against the G3 currencies and USD and JPY in particular if risk appetite rolls over more aggressively here. RBNZ’s Bascand last night argues new bank capital requirements will help.
SEK – EURSEK still free of the former resistance above 10.50, so focus for now on whether the pair pursues a full test-of-top.

NOK – weak oil markets bump the price action back higher in EURNOK – if risk appetite rolls over again, we may risk another squeeze back toward 9.90 or 10.00 again.

Upcoming Economic Calendar Highlights (all times GMT)

0930 – ECB’s Lane to speak
1000 – UK BoE Members before Parliament
1330 – US Dec. Housing Starts / Building Permits
1400 – US S&P Corelogic Home Price Index
1430 – ECB’s Mersch to speak
1445 – US Fed Chairman Powell Testimony released, testimony begins
1500 – US Feb. Consumer Confidence
2145 – New Zealand Feb. Trade Balance

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 (
- Full 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

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.