FX Update: Fed’s Powell testimony, Trump impeachment hearings

Forex 6 minutes to read

John Hardy

Head of FX Strategy

Summary:  Trump failed to provide any fresh impression on the status of US-China trade negotiations yesterday, the RBNZ shocked the market by failing to cut rates as expected, and investors can look forward to an interesting day ahead in Washington with US Fed Chair Powell testimony and the first Trump impeachment hearings.


Trump’s speech yesterday before the New York Economic Club was short on policy details and very long on self-promotion and grievances against the Democrats. On US-China trade negotiations, Trump merely indicated that a trade deal is possible but that tariffs would be raised if no deal was struck.

The RBNZ shocked us and the consensus by failing to cut rates another 25 basis points, keeping the rate at 1.00% and spiking short NZ rates higher – to the tune of 15 basis points for the 2-year rate. The RNBZ wants to see the effects of the rate cuts in the bag before signaling more easing. Governor Orr said there was no intention to surprise the market and teased that the RBNZ will release a framework for alternative monetary policy approaches early next year. The market took this as a signal perhaps that the RBNZ would prefer to stay away from ZIRP. The market has perhaps overreacted relative to Orr’s intention, but this move has scared away the bears for the moment.

Later today, the first of Trump’s impeachment hearings is set to take place, as the top US envoy to Ukraine, William Taylor and Deputy Assistant Secretary of State George Kent are set to testify, starting at 1000 Washington time, or 1500 GMT. The partisan coverage in the news media is so rife that it is impossible to get a sense of how serious the charges are against President Trump in the general public’s eye even if the objective facts point to an impeachable offense if the charges are proven true. The issue will prove a slow-burn one as hearing progress today and Friday and in coming weeks as popular polls are tracked as well as the odds of a shift in the Senate Republican support of Trump, as only the Senate can remove a president, even an impeached one. This becomes a market moving event if Senate support for Trump wobbles.

A bit later in Washington, US Fed Chair Powell will put in an appearance before the Joint economic committee. Recent US economic data has been sufficiently resilient to keep the message at wait-and-see on the economy and market expectations for a December rate cut are moving toward nil, as the market is taking this after all as a “mid-cycle adjustment”. But the balance sheet discussion and congressional questioning into the Fed’s stance on its balance sheet could prove far more interesting, especially on any stronger indication from Powell that most Fed members expect a very limited time horizon of reserve building with the $60 billion a month of Treasury purchases, that will only continue until reserves are at a specific level. This might prove more hawkish than the market expects.

Chart: NZDUSD
Pity the kiwi trader as NZDUSD recently saw a very nice upside-down head and shoulders formation and a neckline break attempt that failed badly, but then bears have since been caught out here by the RBNZ suddenly waxing cautious on the need for further easing, which spike NZ short yields back higher and boosted the kiwi sharply higher. The 0.6425-50 area remains relevant to the upside if this rally holds and the USD strength fades again. Bears need to see this spike back higher quickly erased.

Source: Saxo Group

The G-10 rundown

USD – the greenback generally supported heading into today’s important Fed Powell testimony if he surprises on the balance sheet discussion. Otherwise, waiting for US-China trade deal status to ignite bigger trading ranges for USD pairs.

EUR – Yesterday’s ZEW survey suggests a stabilizing outlook for Germany while the current situation measures remained pegged near the multi-year cycle low.

JPY – yields have stabilized a bit overnight and offered the yen a boost, and the currency was already a bit resilient on Japanese long yields rising sharply lately, though much of yesterday’s rally was wiped out overnight – are yields at an inflection point a burning question for currencies.

GBP – sterling remains supported despite not terribly supportive data yesterday as the most recent data point – the October jobless claims, jumped 33k, matching the highest level in over eight years, while the September employment change was far less bad than expected at -58k. The run to new lows in EURGBP has been a cautious affair and hasn’t yet sparked fresh momentum.

CHF – Wolfstreet.com covers the SNB’s crazy accumulation of equities, to the tune of $100 billion – what this means for CHF is not directly discernible, but reserves would go up in smoke in a bad equity correction.

AUD – the latest Australia employment data up tonight and the most important release for the currency at the moment, due to the RBA’s focus.

CAD – the USDCAD pivoted higher, but isn’t exactly setting the world on fire as we await US-China trade deal news an relative economic developments, with the Bank of Canada inclined toward a precautionary cut to edge the BoC rate back slightly below the Fed rate if the next rounds of Canadian data are weak.

NZD – a big shock to the market overnight that could keep NZD rather bid in the crosses, especially in AUNZD if the AU employment data comes in weak.

SEK – awaiting the CPI this morning, but not seeing it as a major catalyst as the Riksbank is determined to edge away from negative rates – SEK needs fiscal stimulus in Sweden and a firmer Euro to put in a more determined show of strength than we saw recently.

NOK – Norway’s GDP nothing write home about as the mainland GDP slightly underperformed expectations at +0.7% QoQ  - EURNOK still in limbo after failing to punch down through 10.05.

Today’s Economic Calendar Highlights (all times GMT)

  • 0830 – Sweden Oct. CPI
  • 0930 – UK Oct. CPI
  • 1000 – Euro Zone Sep. Industrial Production
  • 1330 – US Oct. CPI
  • 1500 – US Congress Impeachment Hearings
  • 1600 – US Fed Chair Powell to Address Congressional Committee
  • 1910 – New Zealand RBNZ Governor Orr
  • 2350 – Japan Q3 GDP Estimate
  • 0030 – Australia Oct. Employment Change
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
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

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) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 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.