back
Details Cookies
Hong Kong S.A.R
Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

FX Update: USD will become a wrecking ball on further strength FX Update: USD will become a wrecking ball on further strength FX Update: USD will become a wrecking ball on further strength

FX Update: USD will become a wrecking ball on further strength

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The big dollar is rising to the top of the pile again and threatening major resistance. A breakthrough in broad measures of the USD to new highs would increase the general focus on currencies and weaken global risk sentiment anew.


Trading interest

  • Maintaining EURJPY shorts with stops lowered to 118.50. Targeting 112.00
  • Maintaining AUDNZD longs with stops higher now to below 1.0550, targeting 1.0700
  • Putting back on USDCAD long position around 1.3300 with stops below 1.3230, for 1.3500

Risk sentiment weakened late yesterday after an attempt to put together a rally on hopes of a US-China trade thaw as Trump has made a series of friendly noises while the Chinese side has denied claims of “calls” at the weekend. After setting the yuan fix yesterday at 34 basis points weaker, the fix was only moved 4 basis points overnight and spot USDCNY/CNH is trading this morning slightly lower than yesterday’s close.

The almost sideways yuan fix may be behind the risk sentiment bounce overnight, though the USD continues to strengthen and will rapidly provide a countervailing force to further risk sentiment improvement if it rises further. We put back our focus on USDCAD upside after the nice snap-back from the sell-off and given where the fellow commodity dollars are struggling lower again against the big dollar. Already, the firmer USD has EM currencies on the defensive and credit spreads are headed in the wrong direction across EM. USDMXN has hit the 20 mark, and the China-leveraged exporter Malaysia is seeing its MYR at new lows since 2017 overnight.

Sterling is solidly bid as UK Prime Minister Boris Johnson is taking what FT calls a “narrow” approach in only asking the EU side to revisit the Irish backstop rather than a full reopening of existing deal. Meanwhile the UK opposition is in cahoots to do what it can do block a no Deal Brexit. The market is clearly hopeful that the worst case scenario for sterling will be avoided – but we’ll likely need a further breakthrough to get EURGBP down through the next key pivot area at 0.9000.

US treasury auctions this week so far proceeding with little to-do, with 5-year and 7-year notes on the block today and tomorrow. US yield curve inversion has become more profound, with the 2-10 slope this morning at -4 basis points.

Chart: USDCAD
Back to focusing on USDCAD after the nice snap-back from the sell-off that came after the bulls failed to take out the recent highs on multiple tries. A breakthrough opens the path to at least 1.3500 if not 1.3600+. CAD, because of the BoC’s relatively high policy rate is singularly vulnerable to any sign that the central bank is reluctant to find itself behind the curve in the pace of easing that other central banks have delivered. Next Wednesday’s Bank of Canada meeting is the next pivotal event risk for CAD.

Source: Saxo Bank

The G-10 rundown

USD – appreciation from here (especially a push down through 1.1000 in EURUSD, which gets the broader USD measures in overdrive) would begin to lean against risk appetite generally, particularly in EM.

EUR – the euro price action remains uninspiring, but EURUSD looks heavy again and there may be complacency on the downside risk, given the glacial pace of its descent over the last 12 months.

JPY – the yen has failed to strengthen to the degree one would expect, given long bond yields remaining pegged toward the lows. Would still expect to generally correlate with broader USD direction.

GBP – sterling putting up a fight lately, but need a new breakthrough to take EURGBP down through 0.9000 (and GBPUSD looking a bit ambitious here without new developments as well.)

CHF – the consolidation moves are weak as long global bond yields remain pegged near the lows. Any roll over in risk sentiment could set EURCHF to new lows toward the 1.0650 area.

AUD – AUDUSD leaning heavily lower on the USD strength and set for new lows for the cycle if USD strength continues.

CAD – CAD on the defensive as yields at the front end of the CA yield curve collapse back toward the lows for the cycle.

NZD – kiwi under the Aussie’s thumb as AUDNZD makes progress toward our 1.0700 target.

SEK and NOK – Household lending in Sweden still below 5% YoY growth – rising risk of Swedish recession. Norway’s Q2 GDP numbers up tomorrow. Strong USD and/or risk off could push SEK and NOK further over the edge.

Upcoming Economic Calendar Highlights (all times GMT)

  • 0730 – Sweden Jul. Retail Sales
  • 1620 – US Fed’s Barkin (non-voter) to speak
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); 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

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.