FX Update: Trump is panicking and USD is breaking up FX Update: Trump is panicking and USD is breaking up FX Update: Trump is panicking and USD is breaking up

FX Update: Trump is panicking and USD is breaking up

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  US President Trump is pulling out all of the stops to mobilize support for the markets and the economy in what looks like a near panic. Meanwhile, the USD looks set to break higher and the Fed will have a tough time in delivering enough to stop it.

Trading interest

  • Maintaining long AUDNZD with stops below 1.0470 now for 1.0625 and eventually 1.0700
  • Staying short EURJPY for 112.00 as long as remains below 119.50
  • Long USDCAD for 1.3500+ with stops below 1.3240

Trump has lurched into panic mode if we are to judge from yesterday’s remarkable string of developments. Sources in the White House suggest that the administration is readying a payroll tax cut as a relief measure if growth shows signs of faltering – sheer insanity, given the momentum in rising deficits already in place from Trump’s prior tax cut round. Other stories circulated that the White House is studying whether there is a way to cut capital gains tax without Congressional involvement (surely unconstitutional?), and that Trump thinks data are purposefully being manipulated to make him look bad. The peripatetic POTUS also took to Twitter to lambaste the Fed and say that Powell should cut 100 basis points and “perhaps [add] some quantitative easing as well.” The Fed will get there, but at what pace? Somehow, the market thinks there are only 18% odds that we see a larger than 25 basis point cut through the September 18 FOMC meeting. If the USD breaks higher here and holds, this should quickly be adjusted to 50 and raises the risk of a between-meeting cut.

The consolidation in bond markets has only been noticeable at the longest end of the curve, and has hardly impressed. Nor has it yet pressured risk appetite in equity markets, though we are seeing signs of nerves across emerging markets, likely in part due to the stronger US dollar and China setting the USDCNY fix at a new high for the cycle, while USDCNY was allowed to touch the cycle highs overnight. As is often the case, what was formerly most popular across EM is now quite weak – USDRUB is up almost 5% since the July 31 FOMC policy mistake, USDZAR is up around 7%.

It is clear that the Fed will have to deliver and deliver big to turn around the momentum developing in the US dollar – is Powell ready to hint that the Fed will submit to the forces that will eventually force the Fed’s hand anyway (cut to zero and massive QE) or will he continue to dither? The stakes Friday are high.

USDCAD is backing knocking on the key resistance above the 200-day moving average and around recent highs. The economic calendar is also interesting over the next couple of sessions for Canada, as Manufacturing Sales for July are up today, and the important July CPI release is up tomorrow. A close above the resistance here with a backdrop of USD strength could quickly see the pair poking to the top of the range above 1.3500. Note the descending trendline as well.

Source: Saxo Bank

The G-10 rundown

USD – Powell has a tough task to deliver in sufficient size on Friday to hold the USD back. Interesting to note that Trump’s panicky pressure in all directions doing nothing to hold back the greenback either. USD breaking up significantly and/or new local lows in US equities would likely usher in a between meeting 50 basis point cut.

EUR – high stakes for the EU’s leadership as European banks are in a death spiral – the ECB will have to bring out the big bazooka at the September 5 meeting. G7 may offer hints on the temperature of US-EU relations as well. If USD breaks higher versus EUR, we should shield our eyes for Trump policy mobilization against the EU on the trade front.

JPY – yen holding well here and prospects for a broad rally reinvigorated by EM weakness and any return of broader risk off. CADJPY downside an interesting way to express JPY strength.

GBP – Boris wants the Irish backstop abandoned and sterling will have a hard time finding support until/unless the EU gives way.

CHF – consolidation was hardly worth writing home about – EURCHF looks heavy for plumbing further depths until the EU gets ahead on the policy front and Brexit damage is averted. SNB’s intervention gathering pace as per yesterday’s weekly sight deposit data (nearly CHF 4 billion)

AUD – the RBA minutes mildly supportive, as the RBA hopes that infrastructure spending, easing in the bag and tax cuts will offset downside risk to the economy. But at the same time, the RBA clearly ready to swing into gear with QE if the Aussie economy falters.

CAD – note USDCAD chart above – key here for whether CAD plays some downside catch-up are the next couple of Canadian data releases.

NZD – AUDNZD trade creeping and crawling higher – supported by RBA minutes. NZDUSD looking heavy toward those multi-year lows.

SEK and NOK – the NOK putting in a modicum of strength here (but vulnerable again if risk appetite rolls over), while SEK suffering with the EUR and negative yields.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – Canada Jul. Teranet/National Bank Home Price Index
  • 0100 – Australia Jul. Skilled Vacancies


Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 07

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
  • The rise of populism: Far-right parties will influence the future

    The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.

    Read article
  • Investing in China: Navigating Q1 amid economic challenges

    Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

    Read article

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.