Login Open account
Hong Kong S.A.R
USD eyes the highs, but what's the catalyst? USD eyes the highs, but what's the catalyst? USD eyes the highs, but what's the catalyst?

USD eyes the highs, but what's the catalyst?

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The US dollar remains bid as the trade war narrative continues to drive weak risk sentiment. Sterling is in the dumps as we await May’s exit and the UK goes to the polls for EU Parliamentary elections – a de facto referendum on a hard Brexit.

The US dollar continues to pull slowly stronger as risk sentiment weakened overnight, arguably driven by the escalating trade war narrative. Some point to further defiant rhetoric in the Chinese press while the USDCNY rate pokes near the highs for the cycle. A weak flash May PMI from Japan overnight dropped below 50 again after 50.2 in April, underlining the risks of our “False Stabilisation” theme.

Adding to that, while French flash PMIs this morning improved slightly, the flash May German Manufacturing survey dropped even further to 44.3 from an already eye-watering 44.4 in April. The tough part is eliciting any reaction in EURUSD, which reacted all of two or three pips to the release of the Federal Open Market Committee minutes late yesterday.

We're not sure where the market is looking for a catalyst outside of the obvious USDCNY focus around 7.00...

Sterling continues to drop aggressively as it seems unlikely that PM May’s plans for a fourth vote for a deal will ever see the light of day, and yesterday’s resignation of a key cabinet minister is seen as a sign that her resignation is a matter of days, if not hours, away. The timing couldn’t be more interesting, given that the EU Parliamentary elections are to be held today in the UK and the Brexit party looks set to reap votes from not only disaffected Tories, but potentially also pro-Brexit Labour voters.

Certainly, the most motivated to vote will be pro-Brexit voters in an election that historically has very low turnout. Effectively, it’s a referendum for or against hard Brexit. Sterling is suffering the lose-lose mindset that this either leads eventually to a no-deal Brexit or a Corbyn government if elections are called. The political situation is very fluid.

Trading interest

• Adding USDCAD long interest (stop well below 1.3400) to USD longs versus AUD and  EUR (EURUSD perhaps most compelling through relatively short-dated options near the money, given utter complacency and low implied volatility).
• AUDNZD longs for strategic trade (stop below 1.04, targeting 1.10-1.12).

Chart: USDCAD

USDCAD saw a compelling reversal for the bulls yesterday, as a brief poke to new lows on a strong Canadian retail sales report was scooped up and a sharp sell-off in crude oil after the weekly US inventory report added energy to the upside.  This looks like a reasonable technical hook for bulls to re-engage for a try at the cycle top above 1.3600.
 
USDCAD
Source: Saxo Bank
The G-10 rundown
USD – the US dollar is being driven by liquidity considerations and the Fed remains behind the curve. Until the Fed brings out the big bazooka, the USD strength could be set to continue.

EUR – the euro is neglected within the G3, but absorbing strength via a EURGBP rise. The only support for the currency arguably from position squaring as carry trades are squared. But see no reason to like the single currency here – at risk from all directions for now, both existential over the parliamentary elections and from the trade war escalation risks.

JPY – putting on a show of strength again here, something the yen only does when yields are dropping and risk sentiment is at its worst. 

GBP – sterling risks not letting up as instead of a wait for another vote, we have no clue what will happen from hour to hour. Next step is getting a look at the strength of the Brexit party vote after today’s EU Parliamentary elections in the UK.

CHF – new local lows here in EURCHF and we’re not far from the huge 1.1200 area in that pair – some of the CHF strength possibly the flip-side of GBP weakness as well as general weak risk sentiment.

AUD – the only concern here is that market sentiment is already very weak. Interesting to note domestic Australian markets celebrating the easy RBA message and Morrison victory at the election when the latter has promised fiscal tightness (tight fiscal and easy monetary are toxic for a currency).

CAD – a smart turnaround back to the weak side makes sense, given the risk-off tone and weaker oil prices. The loonie was boxing above its weight recently. Further tactical downside risk barring sudden brightening of sentiment.

NZD – we would like to call the lows for AUDNZD, but may need a specific NZD-negative catalyst.

SEK – famously unreliable Swedish unemployment rate drops 0.9% in April from March- we have never understood that data series. Not enthused about SEK’s prospects if the EU outlook and trade war risks deteriorate.

NOK – shouldn’t oil weakness weigh a bit more on NOK? Having a tough time understanding the latest aggressive rise in short Norwegian rates – out of sync with the rest of the world.

Upcoming Economic Calendar Highlights (all times GMT)

1130 – ECB Meeting Minutes
1230 – US Weekly Initial Jobless Claims
1345 – US Markit Flash May PMIs
1400 – US Apr. New Home Sales
2245 – New Zealand Apr. Trade Balance
2330 – Japan Apr. CPI
 

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 07

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

Read article

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Read article

FX: High yielding currencies will start losing their appeal

Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.

Read article

Commodities: Year of the metals

Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.

Read article

Macro: What happened to the future?

The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?

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

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article

  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article

  • FX: High yielding currencies will start losing their appeal

    Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.

    Read article

  • Commodities: Year of the metals

    Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.

    Read article

  • Macro: What happened to the future?

    The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?

    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
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
Products & pricing
Asset Management
Platforms
Accounts & service
General
Other
Legal

Losses can exceed deposits on margin products. Please ensure you understand the risks.

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.