This is a bit more like the FX market we know...

Forex 7 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  Familiar correlations are starting to re-emerge in the wake of further deleveraging in equity markets as the greenback climbs higher versus nearly all rivals.


A fresh downdraft in US equities yesterday finally started to produce the kind of reaction in currency markets we are familiar with from the past, as the USD rallied at the expense of nearly every other currency. A massive new swoon in oil prices came late in the Tuesday session after US President Trump affirmed the importance of maintaining a strong relationship with Saudi Arabia; this saw oil-linked currencies like CAD and NOK enter a fresh tailspin.

Odd behaviour is still afoot as many traditionally sensitive emerging market currencies like TRY and ZAR were very stable on the day and the JPY largely sat out the risk deleveraging, actually weakening slightly against the US dollar even as it was firmer against the weakest currencies yesterday.

Given very ugly risk appetite conditions globally, we are unable to come up with a narrative to explain these latter phenomena, as we discussed in yesterday’s update.

Reserve Bank of Australia governor Philip Lowe was out speaking yesterday and in a Q&A indicated a rather sharp change of tone and concern that credit may be tightening too precipitously now after being too loose previously and predicting that Australia’s unemployment rate, now at 5.0%, could drop to 4.5% without generating wage pressure. This dovish signal saw AUD finally climbing down from its recent pronounced strength and AUDUSD bears have an argument that the attempt above 0.7300 was a bridge too far for the pair. We won’t know more definitively until the other side of the Xi-Trump meeting at the G20 meeting next week.

Market volatility has picked up at an uncomfortable time for liquidity as many traders and investors will shut down today to travel to their Thanksgiving holiday (tomorrow and Friday) destinations. Market moves may prove erratic and could spike on relatively low volumes. 

Chart: AUDUSD

The attempt at new local highs above 0.7300 was rejected yesterday with sufficient force to invite bearish interest as it provides a technical hook. Further traction for the bears here if the pair can take out the pivotal 0.7150 area next.
AUDUSD
AUDUSD (source: Saxo Bank)
The G-10 rundown

USD – the greenback correlations at the moment have switched to reacting to the ups and downs in global asset markets and Asian market stability has contrasted with the weaker markets in the US and Europe, so we come into today with the USD easing off the gas again. The broad USD sell-off prior to its latest bounce still prevents a large hurdle for the USD bulls to overcome – but USD bulls may have a bit of leash in the likes of AUDUSD and USDCAD and NZDUSD tactically.

EUR – the euro has bounced smartly versus the US dollar, until proven otherwise that 1.1300 is strong support, but fresh defiant language from Italy yesterday reminds us that the a more positive euro story could be rough sledding. Next data of interest are the flash November PMIs up on Friday.

JPY – the yen of today is not the yen of yore, perhaps as risk appetite in Asia has proven quite stable if we look at China’s markets and this anchor is  preventing the kind of yen strength one would normally expect when US yields drop amid signs of general risk deleveraging (ex-Asia at least).

GBP – Bank of England governor Carney out yesterday inveighing against a hard Brexit and supportive of Prime Minister May’s deal. A new twist is Spain indicating it will not approve the current deal over issues related to Gibraltar. For now, May survives and we await signs that the deal can be made palatable to a parliament that clearly won’t approve the current one. Corbyn lurking in the background may be a greater threat to the sterling than any other Brexit-linked factor.

CHF – the Swiss franc playing its accustomed role amidst risk deleveraging as it breaks local support in EURCHF. More downside risk there if conditions persist and if the Italian budget situation worsens.

AUD – the AUD turning around, though the positive energy in Asia still keeping it from a more forceful reversal. Still, Lowe’s comments will likely mean plenty of additional pain for AUD to come if the US and China can’t patch things up for a while after the G20 meeting.

CAD – a brutal further slide in oil prices has CAD getting the worst of it and USDCAD is suddenly within reach of the big range high just short of 1.3400. 

NZD – the kiwi getting a fillip via AUDNZD as the AUD punched by comments from the RBA’s Lowe, but the backdrop is just too brutally unsupportive of the kiwi outside of China providing stability for Asian markets.

SEK – the krona doesn’t stand much of a chance of rallying when risk appetite hits the skids and bulls are peering through their fingers at a EURSEK that has popped back up into the range, rejecting the recent downside attempt and placing the chart back in limbo. Watch out for the RIksbank’s financial stability report this morning

NOK – the krone on its knees as the deep funk in oil prices takes on new dimensions and the budget math for the country and its falling oil production starts to look ugly. We were in favour of a repricing of NOK to the upside, but if the slide in oil prices and risk appetite continues, EURNOK could yet carve out new territory beyond 10.00.

Upcoming Economic Calendar Highlights (all times GMT)

• 0830 – Sweden Riksbank Financial Stability Report
• 1000 – Sweden Riksbank Press Conference on Financial Stability
• 1330 – US Oct. Preliminary Durable Goods Orders
• 1330 – US Weekly Initial Jobless Claims
• 1500 – US Oct. Existing Home Sales
• 1500 – US Nov. Final University of Michigan Sentiment
• 1515 – UK BoE Governor Carney to Speak
• 1530 – US DoE Weekly Crude Oil and Product Inventories
• 2330 – Japan Oct. National CPI

Quarterly Outlook 2024 Q4

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

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.