Saxo News & Research by John Hardyhttp://www.home.saxo/Saxo News & Research by John Hardyen-HKSaxo Group 2018 ©Michael McKennaSaxo Grouphttp://www.home.saxo/60{94D017AF-6A5D-4B61-934F-A6F8A5C29F28}https://www.home.saxo/en-hk/content/articles/outrageous-predictions/robert-f-kennedy-jr-wins-the-2024-us-presidential-election-05122023John Hardyeditorial-outrageous predictionsRow 2 OP 2024Robert F. Kennedy Jr wins the 2024 US presidential election <div class="article-excerpt">In 2024, for the first time in the history of the USA, a third-party candidate, Robert F. Kennedy Jr, wins the US presidential election. His populist platform against the war-mongering Democrats and against the corporate elites resonates with both disgruntled traditional Democratic and Trump supporters. A new political era in the USA begins with the dramatic pivot away from plutocracy, as voters demand an end to drastic inequality and injustice and the end of forever wars.</div><div class="article-rte"><div class="rte--output"><p class="text--body">As 2023 yields to 2024, recession begins to take hold in America, bringing with it a greater potential for a sea change in political attitudes. After four years of Trump and then four years of Biden, voter enthusiasm for the geriatric candidates wanes. Biden&rsquo;s support continues to weaken as the economy and labor market go into a tailspin, even as inflation remains elevated. The public links Biden&rsquo;s mismanagement of the geopolitical situation in Ukraine and the Middle East to soaring prices for oil, basic goods and rents. Meanwhile, Trump enjoys an enthusiastic political base, but his narcissistic posturing and erratic behavior see the ranks of his hard-core supporters dwindling.</p> <p class="text--body">Observers note the remarkable parallels with Robert F. Kennedy Sr&rsquo;s pro-peace campaign in the 1968 election, when his popularity soared as he sought to win the Democratic nomination, before his campaign was cut short by an assassin&rsquo;s bullet. RFK Jr&rsquo;s anti-deep state stance echoes his uncle John F. Kennedy&rsquo;s efforts.</p> <p class="text--body">Before the early 2024 recession, RFK Jr hardly seems even a dark horse to win the 2024 election, with polling showing around 15% of the electorate supporting him. But as the US works its way through a recession in the spring and summer, his support in the polls rises inexorably.&nbsp; Discontent with the incumbent Democrats rises to fever pitch. Meanwhile, Kennedy&rsquo;s populist and isolationist message appeals just as much to less well-off Trump voters, with both sides able to join the RFK Jr movement as his &lsquo;third way&rsquo; shatters the old psychology of being either fervently for or against one of the traditional two parties.</p> <p class="text--body">On 5 November election day, Kennedy wins the US presidential election with 38% of the popular vote, with Biden and Trump splitting the rest almost perfectly evenly. The Electoral College win is surprisingly dominant, as Kennedy polls best in much of former Trump country. A new era in US politics begins, as Congressional politics is shaken to the core, eliminating the previous dysfunction as Kennedy is able to build bipartisan coalitions with his policies.</p> <p class="text--body"><strong>Market impact</strong>: Kennedy&rsquo;s pro-peace message and promise to end the abuses of the US healthcare system and break up excess corporate power sees defense, drug and healthcare companies nosedive, and the internet and info-tech monopolies trade nervously on concerns that a wider war against monopoly companies will follow.</p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/thought-leadership/outrageous-predictions">Outrageous Predictions</a> <span>Row 2 OP 2024</span></div>Tue, 05 Dec 2023 07:00:00 Z2023-12-05T06:25:21Z{E4FF0701-5523-4E46-AC76-4113B4CAA5EA}https://www.home.saxo/en-hk/content/articles/forex/fx-update-yields-crater-and-we-only-get-modest-jpy-strength-24082023John Hardyproduct-forexHighlighted articlesFX Update: Yields crater and we only get modest JPY strength?<div class="article-excerpt">Yields cratered yesterday on weak data, but risk sentiment remains strong, generating whipsaw moves in the US dollar and JPY, which has surprisingly under-performed relative to the big drop in global yields.</div><div class="article-rte"><div class="rte--output"><p>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/nvidia-blasts-higher-ahead-of-earnings-what-does-jackson-hole-deliver/" target="_blank">Saxo Market Call podcast</a></p> <h2><span><strong><span>FX Trading focus:</span></strong></span></h2> <p><span><strong><span></span></strong></span></p> <ul> <li><span><strong><span>Risk sentiment pump combined with yield drop holds back USD. </span></strong></span></li> <li><span><strong><span>JPY should continue to find strength if yields continue crater. </span></strong></span></li> <li><span><strong><span>Jackson Hole focus: still chiefly on Fed Chair Powell&rsquo;s speech, but ECB president Lagarde is also out speaking late tomorrow.</span></strong></span></li> </ul> <p><span>Some whipsaw action across FX yesterday, starting with a dump in the euro and sterling as Eurozone and especially UK preliminary August PMI&rsquo;s came in far weaker than expected for the services sector. For the UK, it was the first time the Services PMI had dipped below 50 since January, and the UK&rsquo;s Manufacturing activity dip was particularly ugly, slipping to 42.5 from 45.3 in July, although Germany&rsquo;s 39.1 continues to suggest a dire pace of contraction, even if that marginally beat expectations. This had fixed income heavily bid and took EU yields sharply lower, doing so before the longer end had managed to post new cycle highs as was the case for the US earlier this week. UK yields rushed lower as well, with the 2-year deflating over fifteen basis points yesterday as BoE hiking intentions dropped. EURUSD touched key support as noted below, while GBPUSD has traced out another test of its head-and-shoulders neckline in the low 1.2600&rsquo;s before rebounding on USD weakness later in the day.</span></p> <p><span>That US weakness seemed trigger by the bottom suddenly dropping out of USDJPY in the wake of the BLS announcing a -300k revision in the March 2022 to March 2023 payrolls, which saw US treasuries heavily bid. The move has come full circle as of this writing, perhaps in part on strong risk sentiment in the US tech sector (or at least AI-tech sector if we note the speculative frenzy surround Nvidia). But could some of the JPY weakness at the margin be on Japan&rsquo;s announcement that it would begin releasing radioactive water from its failed Fukushima nuclear plant into the Pacific Ocean, which has prompted China to ban Japanese seafood imports. The bounceback in EURJPY and GBPJPY looks less forceful here and would still look for downside potential there if we have a further drop in yields ahead &ndash; made far more likely by the weak data yesterday and mounting evidence of Eurozone and UK recession in the making. Jackson Hole could also drive direction there, as discussed below.</span></p> <h3><span><strong><span>Chart: EURUSD</span></strong></span></h3> <p><span >EURUSD wilted to the 200-day moving average yesterday on weak Eurozone PMI before a somewhat weak US PMI and news of negative payrolls revisions hit the market (, which hit US yields and took them lower all along the curve). The reversal is far from convincing, with the 1.0800 level the notable line of support for now as we await Jackson Hole speeches from both Fed Chair Powell and ECB president Lagarde. It&rsquo;s hard to see a follow through lower without broader risk aversion, but the pace could be slow if yields also slip and USDJPY is under pressure, though I don&rsquo;t see any reason in principle why we can&rsquo;t have both EURUSD and USDJPY weakness simultaneously (so EURJPY is the high-beta trade, and possibly GBPJY more so).</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/august/24_08_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>Jackson Hole: ECB President Lagarde also on the speech list</span></strong></span></h3> <p><span>I offered extensive thoughts on what Fed Chair Powell might deliver at his Jackson Hole speech tomorrow in <a rel="noopener noreferrer" href="https://www.home.saxo/content/articles/forex/fx-update-jackson-hole-scenarios-22082023" target="_blank">my Tuesday update</a> and still think there is little point in expecting any hints on appropriate policy settings for the near term, as this is the job for the regularly scheduled FOMC meetings and there is no urgent question from the market on whether the cycle is done or almost done here. Rather, we should be watching for longer term hints on where the Fed sees the neutral rate (already much higher in the market&rsquo;s view and well above the longer run projections in the Fed&rsquo;s quarterly dot plot), whether directly or because of the &ldquo;fiscal dominance&rdquo; dynamics that risk higher long yields and longer-term inflation.</span></p> <p><span>But we shouldn&rsquo;t forget that ECB president Lagarde is also speaking at 1900 GMT and may be set to make a point or two on the ECB&rsquo;s stance on the future of monetary policy. It&rsquo;s hard to see the ECB pulling the trigger on rate hikes with a German Manufacturing PMI with a 39 handle. The ECB rate hike cycle is over, which is not yet fully priced.</span></p> <h3><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.</span></h3> <p><span>The sterling rally has lost momentum, possibly fatally so &ndash; another directional stab needed for confirmation that its outperformance is finished for now. Elsewhere, the USD remains in an up-trend until proven otherwise, while JPY status is perhaps the most compelling to watch into early next week post-Jackson Hole, if this extends the decline in global yields.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/august/24_08_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.</span></h3> <p><span>CHFJPY longs have certainly been awarded over the last 105 trading days (!), while other JPY crosses appear in danger of flipping lower or have already done so. Watching EURJPY and GBPJPY closely in coming days on that account. </span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/august/24_08_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><strong><span>Upcoming Economic Data Highlights (all times GMT)</span></strong></h3> <ul> <li><span>1230 &ndash; US Initial Jobless Claims </span></li> <li><span>1230 &ndash; Chicago Fed National Activity Index </span></li> <li><span>1230 &ndash; US Jul. Durable Goods Orders</span></li> </ul> <p><span>Tomorrow</span></p> <ul> <li><span>1405 &ndash; Fed Chair Powell delivers Jackson Hole speech</span></li> <li><span>1900 &ndash; ECB President Lagarde to speak at Jackson Hole</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 24 Aug 2023 11:30:00 Z2023-09-22T22:37:09Z{B8D3583E-8375-49AC-8D60-D7054094FD22}https://www.home.saxo/en-hk/content/articles/forex/fx-update-jackson-hole-scenarios-22082023John Hardyproduct-forexHighlighted articlesFX Update: Jackson Hole scenarios<div class="article-excerpt">US treasury yields are bobbing up and down sharply, taking the JPY crosses for a rocky ride since yesterday, but this a mere distraction ahead of the main event, a possibly pivotal Powell speech at Jackson Hole on Friday.</div><div class="article-rte"><div class="rte--output"><p>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/nvidia-blasts-higher-ahead-of-earnings-what-does-jackson-hole-deliver/" target="_blank">Saxo Market Call podcast</a></p> <h2><span><strong><span>FX Trading focus:</span></strong></span></h2> <p><span><strong><span></span></strong></span></p> <ul> <li><span><strong><span>US treasury yields pull to new highs at the long end of the curve, sending JPY lower, but with a sharp reversal following today.</span></strong></span></li> <li><span><strong><span></span></strong></span><strong >Jackson Hole: Fed Chair Powell to speak Friday. There is huge potential for longer term signals on how Fed sees its role in coming years, and possibly even guidance on the appropriate longer term policy rate. We outline a few scenarios.</strong></li> </ul> <p><span>Yesterday saw an odd combination of a pop higher in US treasury yields and strong risk sentiment, which meant the US dollar was largely sidelined, while JPY crosses hopped and danced with the surge in yields, a surge that was partially unwound in today&rsquo;s trade. Longer US yields even managed to post new decade-plus highs before retreating today. It is quite clear that JPY crosses will main mono-obsessed with the direction in long global yields unless the Bank of Japan is willing to take further policy-normalization steps, something that might yet become more urgent if USDJPY advances to 150+ again. Until then, while the JPY and yield moves are important technically, the main event is this week&rsquo;s Jackson Hole, Wyoming symposium hosted by the Kansas City Fed and featuring a Fed Chair Powell speech on Friday - discussed below.</span></p> <h3><span><strong><span>Chart: EURJPY</span></strong></span></h3> <p><span>EURJPY managed to scratch to a new post-2008 high yesterday well above 159.00 before retreating today as both US and European yields retreated after US 10-year and longer yields posted new highs for the cycle (and since 2007 in the case of the 10-year treasury yield benchmark). The yen seems destined to remain tightly linked, with negative correlation, to the swings in global yields as Japanese yields might even remain low-beta to global yields in the event of further BoJ policy tweaks. The EURJPY in the longer term picture looks egregiously over-extended, and do note the divergence in the MACD, although we need to at least see a sharp tumble down through 157.50 to suggest the rally is faltering/reversing.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/august/22_08_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>Jackson Hole: a pivo</span></strong></span><a title="Outdent" class="reTool" href="https://green.int.cmprod.saxo/EditorPage.aspx?da=core&amp;id=%7B7BB31912-A179-4B84-AC81-464AECE1749E%7D&amp;ed=FIELD260156633&amp;vs&amp;la=en&amp;fld=%7B3C8271A9-3C70-4C36-90CA-651690DC6064%7D&amp;so&amp;di=0&amp;hdl=H260156730&amp;mo&amp;pe=0&amp;fbd=1##"" unselectable="on" ><span class="Outdent" unselectable="on"></span></a><strong >tal signal from the Fed dead ahead?</strong></h3> <p><span>It&rsquo;s been years since the annual Jackson Hole symposium hosted by the Kansas City Fed has generated as much attention as this year's powwow. The theme this year is &ldquo;Structural shifts in the global economy&rdquo;</span><span>. Not particularly specific, but some possible big hints, given the massiveness of the topic. Is the title meant to suggest an update of the remarkable ECB President Lagarde speech back in April titled &ldquo;<a rel="noopener noreferrer" href="https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230417~9f8d34fbd6.en.html" target="_blank">Central banks in a fragmenting world</a>.&rdquo;? That speech got far less attention than it deserved.&nbsp; In it, Lagarde outlined a number of geopolitical developments that required the central bank&rsquo;s attention, most importantly the need for the central bank to support investment that lowers the risk of supply shocks stemming from an increasingly fragmenting world (Covid having laid bare the excess reliance on China for supply chains and the Russian invasion of Ukraine making Europe&rsquo;s energy supply chains suddenly so fragile and more expensive). The paragraph below is perhaps the most crucial one in that speech:</span></p> <p ><span>"For example, if fiscal and structural policies focus on removing supply constraints created by the new geopolitics &ndash; such as securing resilient supply chains or diversifying energy production&nbsp;&ndash; we could then see a virtuous circle of lower volatility, lower inflation, higher investment, and higher growth. But if fiscal policy instead focuses mainly on supporting incomes to offset cost pressures (in excess of temporary and targeted responses to sudden large shocks), that will tend to raise inflation, increase borrowing costs and lower investment in new supply."</span></p> <p><span>What would a Fed Chair Powell speech equivalent of this speech be this Friday (1405 GMT)? Something along the lines of the same: supporting US fiscal objectives which are largely intended to avoid excessive reliance on China/Taiwan for strategically important goods, most notably semiconductors. Those are the Biden administration&rsquo;s Inflation Reduction Act and CHIPS and Science Act, which are remarkable in helping to drive expanding deficits at a time of virtual full employment. At the same time, the Fed has to at least hint that it is considering the elephant that everyone knows is in the room: unsustainable debt dynamics that will quickly worsen with these high deficits (which will only worsen further&nbsp; in a recession) and as new treasury issuance rolls into higher yield territory. </span></p> <p><span>What to do then? The old answer would have been to stop quantitative tightening and restart QE. But this is not yet acceptable when the inflation dragon has yet to be slain and labor markets are so tight. Rather, there is wide-ranging speculation that the Fed could be preparing the market for policy shifts that improve the demand dynamics for US treasuries in order to at least delay the spiraling risk of higher long rates due to &ldquo;fiscal dominance&rdquo;. <a rel="noopener noreferrer" href="https://research.stlouisfed.org/publications/review/2023/06/02/fiscal-dominance-and-the-return-of-zero-interest-bank-reserve-requirements" target="_blank">This paper</a> has gotten considerable attention on that front and suggests that lower interest on bank reserves to zero would help stave off a rising rate spiral by forcing banks to pay less on deposits, thus both lowering bank earnings and effectively taxing depositors with &ldquo;real losses&rdquo; via an inflation tax as banks can&rsquo;t offer attractive yields on deposits. This would also encourage depositors to buy treasuries directly themselves. <strong>Market outcomes: hard to discern, if we get clear policy signals confirming the above, it is likely very bad for banks and possibly economic growth, but could also mean lower long yields &ndash; so most bullish for the yen?</strong> </span></p> <p><span>Others see the Fed taking its longer run Fed policy rate projections higher (the projections published in the Fed&rsquo;s quarterly &ldquo;dot plot&rdquo;). On that front, a Wall Street Journal op-ed from &ldquo;Fed whisperer&rdquo; Nick Timiraos put out over the weekend was titled &ldquo;Why the Era of Historically Low Interest Rates Could Be Over&rdquo; and argued that higher productivity and higher deficits are possibly set to reset the Fed&rsquo;s attitude on the appropriate longer term policy rate. The hawkish surprise on this front would be language hinting that the September FOMC meeting will deliver a bump in the longer run rate projections, even if there is no pushback against the notion that is mostly priced that the Fed has reached its terminal policy rate for this cycle. Since 2019, the median longer term rate projection has been pinned at 2.5%. <strong>Market outcomes: A rise in the longer run rate projections</strong> <strong>would be the scenario most likely to deliver USD strength and risk-off.</strong></span></p> <p><span>The &rdquo;boring&rdquo; scenario would be a discussion of the above without any solid takeaways or hints on either longer term implications or what the Fed is set to deliver at the September FOMC meeting. <strong>Market outcomes: the US dollar and other currencies will revert to their usual correlations with risk sentiment/China and yield direction.</strong></span></p> <h3><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.</span></h3> <p><span>The USD and GBP strength (the latter on BoE leading the tables on further hike projections), while the smaller G10 currencies are still dragging on the weak risk sentiment up until yesterday&rsquo;s and today&rsquo;s huge surge. As noted above, the Jackson Hole conference has considerable potential to reset the narrative in the short term.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/august/22_08_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.</span></h3> <p><span>Sterling pairs look notably extended, with GBPUSD the only notable USD pair not firmly in USD rally territory (arguably together with USDCHF). The AUDNZD pair can&rsquo;t make up its mind as it continues to triangulate.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/august/22_08_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><strong><span>Upcoming Economic Data Highlights (all times GMT)</span></strong></h3> <ul> <li><span>1400 &ndash; US Richmond Fed Manufacturing Index </span></li> <li><span>1830 &ndash; Chicago Fed&rsquo;s Austan Goolsbee (voting member) speech </span></li> <li><span>2000 &ndash; API's Weekly Crude and Fuel Stock Report </span></li> <li><span>2300 &ndash; Flash Aug. Australia PMI&rsquo;s </span></li> <li><span>0030 &ndash; Flash Aug. Japan PMI&rsquo;s</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 22 Aug 2023 12:55:00 Z2023-09-23T04:58:00Z{9C287C4D-71A8-4F64-99DA-7270026963C0}https://www.home.saxo/en-hk/content/articles/forex/fx-update-jackson-hole-scenarios-27072023John Hardyproduct-forexHighlighted articlesFX Update: Two-way risks over Bank of Japan meeting.<div class="article-excerpt">The ECB meeting today is dovish at the margin, with the market surprisingly quite surprised at the statement. Tonight’s Bank of Japan meeting is seeing massive hedging of JPY upside risk, but volatility risk could go both ways.</div><div class="article-rte"><div class="rte--output"><p>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/inscrutable-bank-of-japan-will-have-to-surprise-someone/" target="_blank">Saxo Market Call podcast</a></p> <h2><span><strong><span>FX Trading focus:</span></strong></span></h2> <ul> <li><span><strong><span>FOMC was a damp squib and the ECB meeting should have been a non-event as well, but is read as more dovish than expected at first blush.</span></strong></span></li> <li><span><strong><span>Strong US data an interesting challenge to the FOMC reaction</span></strong></span></li> <li><span><strong><span>Huge hedging in JPY upside risks ahead of BoJ meeting &ndash; ironically can make volatility risks run both ways.</span></strong></span></li> </ul> <p><span>The ECB hiked rates as expected and kept a data-dependent message on the odds for a September meeting additional hike. This was no major surprise as several ECB officials have been out and pulling away from pre-committing to any further tightening. The news this week that Q2 bank lending was cratering at a record rate is sending chills up and down the bank&rsquo;s spine, and we have to remember that the Eurozone is a a more banking-intensive economy. Also, unlike the US, there was less of a cash splash to boost personal income and savings during the pandemic and less of a refinancing boom that keeps so many in the US still operating at record low interest rates from pandemic era loans. Unlike the previous statement, this new statement from the ECB highlights that its policy moves are feeding through: &ldquo;financing conditions have tightened again and are increasingly dampening demand, which is an important factor in bringing inflation back to target.&rdquo; This may prove the last rate hike for the cycle, but at minimum should mean the euro&rsquo;s days as a broadly strong performer are over. It is a bit surprising that the market found the decision as surprising as it did (although some of that was the USD move weaker in the wake of the FOMC meeting that was simply backed out), but now we watch whether the damage to the euro widens out to both EURUSD and EURJPY (the latter on the Bank of Japan risks as noted below). For EURUSD, a close below 1.1000 for the week suggests the highs are in for now.</span></p> <p><span>Just after the ECB meeting, we see strong US data (lowest weekly jobless claims number since February and strong GDP print, although that was on a very low GDP price rnumber of 2.2% annualized vs. 3.0% expected and 4.1% in Q1) complicating the market&rsquo;s reaction to the FOMC meeting. The FOMC meeting itself was a non-event with an unchanged statement on balance and Fed Chair Powell determined not to say anything except that the Fed remains data dependent. The equity market can hear no evil, however, as stocks continue to soar &ndash; that looks a bit out of place in treasury yields heat up again on the incoming data.</span></p> <h3><span><strong><span>Chart: EURUSD</span></strong></span></h3> <p><span><strong><span></span></strong></span><span >The Bank of Japan could yet have influence on the direction in the US dollar if there is a strong reaction off the back of the Bank of Japan meeting tonight, but taking EURUSD by itself, the key here is the 1.1000 area that bears need to retake into early next week to suggest that a top is in for now.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/27_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>Bank of Japan can only surprise?</span></strong></span></h3> <p><span>As few have a clue what the Bank of Japan is set to deliver at its meeting tomorrow, it should have the most potential to surprise and trigger a sharp directional move, especially if the Bank of Japan moves forward with a policy tweak and provides guidance for more to come. But even the expression of a likely incoming tweak once a new round of projections is available for the </span><span>October meeting could do much of the same as the market will see it as pre-committing to a course of action. I see this as unlikely &ndash; either the Bank of Japan tweaks or keeps its mouth shut on its intentions and suggests all is unchanged for now as it considers its options and conducts its policy review.</span></p> <p><span>In the meantime, option market implied volatility has blown out considerably in recent days and suggests the greatest anticipation (or at least greatest hedging activity) since the March meeting (Kuroda&rsquo;s last) that something may be afoot at this meeting. The 1-week USDJPY implied volatility has risen to nearly 18% and one-day risk reversals are extremely bid for downside protection in USDJPY &ndash; nearly a 10% premium for puts, perceived for good reason as the side offering the most volatility potential. Arguably, JPY weakness is still a risk if the Bank of Japan delivers nothing at all, especially as all of this option buying will see the unwinding of hedges if nothing happens tonight.</span></p> <h3><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.</span></h3> <p><span>Two way risks for the JPY noted above. The USD bear market is seeing another challenge here as the USD backs up &ndash; we should know more depending on whether EURUSD capitulates through the next important area into 1.1000 and whether USDJPY punches back higher (presumably because the BoJ chooses the &ldquo;do nothing&rdquo; path once again.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/27_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.</span></h3> <p><span>Several USD pairs in play through the end of this week and into next. GBPUSD looks heavy for new down-trend risks if the 1.2800 area fails, AUDUSD trend status is in limbo, etc.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/27_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 27 Jul 2023 13:10:00 Z2023-09-23T06:27:14Z{5EABEA4C-7E26-4FF0-9385-2FC1C6C460FB}https://www.home.saxo/en-hk/content/articles/forex/fx-update-clouds-gathering-over-the-euro-25072023John Hardyproduct-forexHighlighted articlesFX Update: Clouds gathering over the euro.<div class="article-excerpt">The Eurozone and especially Germany are in a deepening funk, but with the ECB already having waxed increasingly dovish, how does it surprise dovish this week to weaken the too-strong euro?</div><div class="article-rte"><div class="rte--output"><p>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/disinflationary-daydreaming/" target="_blank">Saxo Market Call podcast</a></p> <h3><span><strong><span>FX Trading focus:</span></strong></span></h3> <ul> <li><span><strong><span>Economic outlook in Eurozone worsening, especially in Germany &ndash; this puts euro at risk, but will ECB do enough this Thursday to weaken the euro?</span></strong></span></li> <li><span><strong><span>China stimulus hopes boosts Antipodeans </span></strong></span></li> </ul> <p><span>Fresh data out this morning shows the deepening funk in the Eurozone and particularly in Germany. The German IFO survey for July was out this morning showing a worse than expected drop in the Current Assessment part of the survey, which dropped to 91.3 from 93.7 in June (and versus 93.0 expected). The Expectations component was slightly better than expected at 83.5 vs. 83.4 expected, but still falling directionally from the upward revised 83.8 (from 83.6) in June. Perhaps worse, the ECB&rsquo;s quarterly bank lending survey was out this morning and showed a record drop in corporate loan demand (to lowest since 2003 start of the survey), with demand for mortgages and consumer credit also coming in lower. Some 14% of banks tightened credit standards further after 27% did so in Q1, while banks noted a deteriorating access to funding.</span></p> <p><span>In reaction, the euro traded marginally lower to new local lows in places. It is no secret that the ECB has pulled in its hawkish talons of late, and forward expectations have dropped rapidly relative to the US, taking the 2y2y EU-US spread (the difference between the market&rsquo;s pricing of the EU vs. US 2-year yield, two years into the future) is nearly matching its lowest level since last November, with the 10-year German Bund- US 10-year yield spread poised near its lows for the year as well. And yet, EURUSD has merely removed the latest aggressive extension to the upside beyond the former high water mark near 1.1095 and a bit. Why are we not trading lower? Clearly, it isn&rsquo;t just about the rate differentials but also chiefly about factors like sentiment and the markets currently in the middle of the &ldquo;USD smile&rdquo;, a paradigm that suggests as long as the Fed is not on the war path with policy tightening and markets are generally complacent, the USD has little chance of staging a meaningful rally. So to get a proper reversal in EURUSD and close back below 1.1000, we&rsquo;ll likely need to see a more determined turn lower in risk sentiment.</span></p> <p><span>It is a bit harder to understand why EURJPY should be up here as the outlook for Europe continues to worsen, and if the ECB rate tightening is done as long as inflation is directionally easing and the growth trajectory continues to suffer. An added impact on EURJPY can of course come from an eventual Bank of Japan policy tweak, even if that tweak may not be forthcoming at this Friday&rsquo;s Bank of Japan meeting. For the ECB to really smash the euro and send a strong signal of concern, they would have to skip this week&rsquo;s pre-committed rate hike. Instead, the more likely &ldquo;most dovish&rdquo; scenario is that we get the expected hike, but a quite firm removal of any guidance on further tightening by upping concern on the status of the Eurozone economy. This would likely remove the bulk of the current 50/50 odds of one last ECB hike by year end. </span></p> <h3><span><strong><span>Chart: EURJPY<br /> </span></strong></span></h3> <p><span><strong><span></span></strong></span>If this Thursday&rsquo;s ECB brings dovish guidance and the Bank of Japan even merely flags a possible tweak down the road, much less an actual move to expand its yield-curve-control band this Friday, EURJPY could be set for a powerful move lower. We have a local bearish reversal here after Friday&rsquo;s sharply rally has since been erased, but further technical evidence that this year&rsquo;s bull market is coming unwound would require a close back below the 153.50 area pivot low from earlier this month. Bigger picture, the pair really needs to reverse out the bulk of the gains since 150 for a more emphatic signal that the extraordinary period of policy divergence is ending and we are headed in the direction of convergence for the next year or more.</p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/25_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>China stimulus hopes boost Antipodeans</span></strong></span></h3> <p><span><strong><span></span></strong></span><span >A Politburo meeting and accompanying statement have helped revive the commodity space, if somewhat modestly. The best proxy for Chinese stimulus hopes is perhaps copper, which turned sharply higher overnight and boosted the Aussie. We can believe something bigger is afoot here for the Aussie if copper can sustain a strong bid up through the 3.95-4.00/lb. area. So far, China&rsquo;s stimulus signals have been too muted and hesitant thus far. The USDCNH rate was punched lower as a further sign of the Politburo meeting making waves overnight- still just looks like consolidation in that pair. See more on the policy signals from the meeting in </span><a rel="noopener noreferrer" href="https://www.home.saxo/content/articles/macro/china-update---politburo-focuses-on-quality-growth-and-industry-policies-25072023" target="_blank">Redmond&rsquo;s excellent piece</a><span >.</span></p> <p><span>An important further test for the Aussie comes into view tonight as the Australia reports its Q2 CPI. The key &ldquo;trimmed mean&rdquo; core inflation figure is expected at 6.0% Y/Y, still unacceptably high, although the RBA is also priced to have already reached its peak policy rate for the cycle or perhaps ready to hike one last time this year. </span></p> <h3><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span></h3> <p><span></span><span >The CNH comeback is so far a neutralization by the PBOC of prior extensive weakness &ndash; would be surprised to see this blossom into something more significant. More interesting from here is whether the USD can pull back into bull market mode after the FOMC and PCE this Friday. And note the negative momentum jolt in EUR &ndash; more building there?</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/25_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.</span></h3> <p><span>EURNOK has sold off strongly and is testing its 200-day moving average, with oil supporting NOK at the moment. Some of the USD pairs are barely hanging on to their bear USD trends. NZDUSD has flipped back to negative, AUDUSD is on the cusp and GBPUSD is also teetering &ndash; a key week ahead for USD trend status.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/25_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><h3><strong><span>Upcoming Economic Data Highlights (all times GMT)</span></strong></h3> <ul> <li><span>1230 &ndash; US Philadelphia Fed Non-manufacturing activity </span></li> <li><span>1300 &ndash; US May S&amp;P CoreLogic Home Price Index </span></li> <li><span>1400 &ndash; US Jul. Conference Board Consumer Confidence </span></li> <li><span>1400 &ndash; US Jul. Richmond Fed Manufacturing Index </span></li> <li><span>1700 &ndash; US Treasury to auction 5-year Notes </span></li> <li><span>0130 &ndash; Australia Q2 CPI</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 25 Jul 2023 10:45:00 Z2023-09-23T10:07:53Z{D5E51ABB-ED9F-457F-A442-2787ED6DDF5F}https://www.home.saxo/en-hk/content/articles/forex/fx-update-usd-bear-market-status-in-play-jpy-thrashed-again-21072023John Hardyproduct-forexHighlighted articlesFX Update: USD bear market status in play. JPY thrashed again.<div class="article-excerpt">The US dollar is rallying into pivotal areas after treasury yields rose yesterday and ahead of FOMC next week. The JPY sharply lower this morning on stories suggestion BoJ will stand pat next week.</div><div class="article-rte"><div class="rte--output"><p><span>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/big-market-break-with-big-week-ahead/" target="_blank">Saxo Market Call podcast</a>.</span></p> <h3><span>FX Trading focus:</span></h3> <ul> <li><span><strong><span>USD has recovered back above the level it broke on the way down (in USD index). Is bear market status in play?</span></strong></span></li> <li><span><strong><span>JPY sent lower on stories suggest BoJ will stand pat next Thursday</span></strong></span></li> <li><span><strong><span>Big week ahead with FOMC, ECB and BoJ all on tap.</span></strong></span></li> </ul> <p><span>The US dollar backed up sharply yesterday and overnight, with the move aggravated this morning by a Reuters story suggesting that the Bank of Japan is likely to stand pat at next week&rsquo;s BoJ meeting, sending USDJPY and JPY crosses rocketing higher. EURJPY even threatened the cycle highs. The sharp move even prompted the Japanese Ministry of Finance Kanda to come again &ldquo;excessive moves&rdquo; in the currency market and that he is watching the situation with a sense of urgency. Bloomberg followed up with <a rel="noopener noreferrer" href="https://www.bloomberg.com/news/articles/2023-07-21/boj-is-said-to-see-little-need-to-act-on-yield-control-for-now?sref=FAeeuM97" target="_blank">its own article</a> pointing to the same conclusion, with its sources saying that &ldquo;there is no urgent need to address the side effects of its yield curve control program at this point, though they expect to discuss the issue.&rdquo;</span></p> <p><span>Prior to the BoJ story, EURUSD had challenged as low as 1.1119, still some way above the 1.1095 break level on the way up, but the surge in the USDJPY has helped push the broader USD index back above the double bottom low of 100.78 from earlier this year. As we discussed on this morning&rsquo;s Saxo Market Call podcast, that doesn&rsquo;t mean we have a bullish reversal on our hands just yet, especially due to the scale of the previous slide, but if we back up above 102.00 in the dollar index, a reversal threat looms. What would trigger such a scenario? Further strong US data that takes US 10-year treasury yield back well clear of 4.00% and wobbly risk sentiment, as well as a Bank of Japan that does indeed refuse to budge at its meeting next week.</span></p> <p><span><strong><span>Chart: USDJPY<br /> </span></strong></span><span >USDJPY has reversed much of its recent slide, with a very sharp move this morning on the BoJ story discussed above. The reversal was arrested right at the 61.8% retracement level near 142.00 shown in the chart below, but has no chance of staying below there if US yields continue to reheat on resilient data, a hawkish Fed or any other reason, and if the BoJ does stand path with no willingness to even indicate it will tweak policy soon at next Friday&rsquo;s BoJ meeting. We could trade 145.00 next week if US 10-year yield is 4.00% and higher and BoJ sits on its hands.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/21_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Week ahead: Incoming data and G3 central banks lined up Wed-Fri<br /> </span></strong></span><span >Next week sees the G3 central banks lined up like ducks in a row. At Wednesday&rsquo;s FOMC meeting, the Fed is seen hiking and will likely want to retain &ldquo;optionality&rdquo; on the potential to hike again, given it doesn&rsquo;t need to encourage already frothy financial conditions. It can surprise hawkish by guiding more firmly for further tightening as the market is mostly convinced that this will prove the last rate hike of the cycle, with about 125 basis points of easing priced through the end of next year. Interesting data next week from the US includes the July Consumer Confidence survey on Tuesday after the June survey saw the best Present Situation reading since January of 2022 (normally correlated with labor market sentiment) and a solid jump in Expectations. We&rsquo;ll also see the first estimate of Q2 GDP on Thursday and June PCE inflation data on Friday, which is more interesting than usual as a material drop in the Y/Y PCE core is expected, to 4.2% after six consecutive months of 4.6-7% core inflation readings.</span></p> <p><span>For Europe, we get a look at the preliminary July PMI for France, Germany and the Eurozone on Monday. The story last month was of still ugly manufacturing PMI, while Services PMI is also struggling to show convincing growth &ndash; France&rsquo;s was even below 50. Weak data could weigh on the euro, as the ECB has already been backing off its commitment to rate tightening beyond the expected 25 basis point move next week. If US yields are surging and we have weak Eurozone PMI data and a likely dovish ECB (remember my Wednesday update arguing that the ECB likely has its eyes on very stretched EURJPY and EURCNH as a factor), could we even see a full reversal in EURUSD? That requires we close next week below 1.1000.</span></p> <p><span>I was leaning for a possible tweak at next Friday&rsquo;s BoJ meeting, but stories circulated today give little confidence that Ueda and company are ready to move just yet, which could mean an aggravated extension of JPY weakness if US treasury yields end higher. This does little to alter the 3-month and longer term view that EURJPY and other JPY crosses are over-stretched. We get policy convergence eventually is the operating assumption.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The US dollar is resurgent, and the CNH is tagging along for the ride for the moment after the PBOC moved to support the renminbi this week. The greenback has much more to do to indicate a full bullish reversal. The JPY is on tilt back lower ahead of an important BoJ meeting and as US yields are suddenly perking up.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/21_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Among G10 USD pairs, NZDUSD has been the first one to suggest a full reversal in the USD sell-off is underway, and GBPUSD could be soon to follow if it fails the 1.2800-50 area, while USDCAD could be looking at a change of trend on a single large rally bar today or next week after recently rejecting new lows. USDCNH is only interesting above 7.24 or below perhaps 7.12.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/21_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 21 Jul 2023 11:50:00 Z2023-09-23T10:08:46Z{45CC0856-EFC9-4C4A-873F-E3947E7FEC85}https://www.home.saxo/en-hk/content/articles/forex/fx-update-the-end-of-sterling-outperformance-euro-next-19072023John Hardyproduct-forexHighlighted articlesFX Update: The end of sterling outperformance. Euro next?<div class="article-excerpt">The June UK CPI report saw sterling tumble as the market adjusted BoE rate tightening expectations sharply lower. The euro could be the next currency to come in the negative spotlight as EU yields tumble.</div><div class="article-rte"><div class="rte--output"><p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Sterling&rsquo;s outperformance since the beginning of this year is likely over after this morning&rsquo;s June CPI data point</span></strong></span></li> <li><span><strong><span>The euro could be the next major currency to feel the heat as the ECB climbs down from hawkish stance, EU yields drop.</span></strong></span></li> <li><span><strong><span>Weak CNH weighing on AUD and NZD</span></strong></span></li> </ul> <p><span>Sterling has come in for a drubbing today after the June UK CPI numbers came in softer than expected. The focus is on the core CPI, which dropped to 6.9% versus 7.1% expected and the 7.1% in May. The headline CPI also dropped more than expected to 7.9% versus 8.1% expected and 8.7% in May, with the M/M figure of a mere 0.1% (0.4% expected) That May core CPI figure was the second of two consecutive new multi-decade highs in core UK inflation that spooked the market and had rate expectations for the BoE arching well north of 6.00% by the end of this year. After today&rsquo;s inflation print, the 2-year Gilt has fallen over 20 basis points and trades south of 4.9% after the high of 5.56% just under two weeks ago, with only about 90 basis points of further tightening now priced from the BoE (down from over 150 bps). It&rsquo;s an enormous pivot, enhanced by the BoE&rsquo;s obvious hope/expectation that CPI is set to fall sharply in the second half of the year. The August meeting is now a 50/50 probability for 25 or 50 basis points after having been pinned at 50 basis points in recent weeks. The BoE will deliver as little as it can get away with from here if the data continues to head in the right direction.</span></p> <p><span>This June UK CPI number likely spells the end of the sterling outperformance that characterized the first half of this year. The EURGBP rally discussed below is the most important pair to watch for the broader sterling status.</span></p> <p><span><strong><span>Chart: EURGBP<br /> </span></strong></span><span >EURGBP rocketed higher in the wake of the UK CPI release this morning, thoroughly confirming the recent rejection of the new cycle lows below 0.8520. In the big picture, this chart often shows long periods of range-trading behaviour, but this strong rally, should it hold up here into today&rsquo;s close, could point toward a reasonable short-term trend to the range highs into 0.8900+ in the weeks ahead, though going may be slower beyond here if we are seeing a more concerted effort by the ECB to slow rate hike expectations (more below).</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/19_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Is the strong EUR/weak CNH &amp; JPY prompting ECB dovish shift?<br /> </span></strong></span><span >The center of gravity for currencies in Asia is the Chinese renminbi, which generally failed to make much hay out of the recent USD weakening, as it has now bounced from the lows on Friday of 7.12 to 7.22 into today&rsquo;s European session. On that note, it is worth pointing out that EURCNH has gone almost vertical this year, trading above 8.10 after starting the year nearer 7.25 on concerns that China is not committing to sufficient stimulus to grow its economy as it does not want to add to already leveraged sectors of the economy.</span></p> <p><span>The pronounced CNH weakness, together with the wild rise in EURJPY this year, is worth considering as a driver of the ECB&rsquo;s turn to less hawkishness, with one of the most traditionally hawkish members Klaas Knot weighing in yesterday against the idea of two more hikes from here. The powerful Euro erodes the competitiveness of European exports on the world market. Can we expect the breadth in euro strength to ebb from here? &nbsp;German 2-year yields pushed all the way down below 3.00% at one point today, but so far EURJPY and EURUSD are not really playing ball as the air leaks out of ECB expectations &ndash; this is a space to watch, as Europe can ill afford weak growth and a strong currency. Next Thursday&rsquo;s ECB is likely shaping up as a chance to deliver a message on the currency and links to ECB policy, together with no commitment to further tightening beyond a presumed 25 basis point hike (and if EURJPY and EURCNH making new highs into next Thursday, could the ECB even shock with pause?) </span></p> <p><span>Elsewhere, the CNH weakness is holding back AUD and NZD in the crosses, with NZDUSD on the verge of a full bearish reversal if it moves much lower, and AUDUSD likewise. Further USD strength in these pairs would add to the cracks in the weak USD picture.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >USD weakness is leaking out of the picture quickly here, but the greenback has not yet strengthened enough to threaten a reversal, particularly not within the G3. Note that CNH weakness is now eclipsing USD weakness. The sterling jolt lower has not neutralized its former broad up-trend. If euro outperformance is set to ease as we discuss above, the Scandie snap-back rally may not have much follow through potential.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/19_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >AUDNZD trending status remains in flux &ndash; and watching AUDUSD And NZDUSD closely for status confirmation in the coming days as USDCNH is trying to flip back to the positive side. USDCHF looks overdone but has shown no signs of bouncing.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/19_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1230 &ndash; US Jun. Housing Starts and Building Permits </span></li> <li><span>1430 &ndash; US Weekly DoE Crude Oil and Product Inventories </span></li> <li><span>1700 &ndash; US Treasury to auction 20-year Bonds </span></li> <li><span>2350 &ndash; Japan Jun. Trade Balance </span></li> <li><span>0115 &ndash; China Rate Announcement </span></li> <li><span>0130 &ndash; Australia Q2 NAB Business Confidence </span></li> <li><span>0130 &ndash; Australia Jun. Employment Data</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 19 Jul 2023 11:10:00 Z2023-09-23T01:43:20Z{AC1FEDFB-94AA-4307-8CAC-3B6531A73AFB}https://www.home.saxo/en-hk/content/articles/forex/fx-update-a-broader-next-round-of-jpy-strength-17072023John Hardyproduct-forexHighlighted articlesFX Update: A broader next round of JPY strength?<div class="article-excerpt">The USD backed up on Friday as a strong consumer sentiment survey boosted US treasury yields, but the greenback will likely continue to struggle. JPY remains the chief focus elsewhere with Japan reporting latest inflation data on Friday.</div><div class="article-rte"><div class="rte--output"><p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>USD bounced after brutal run lower as US treasury yields backed up on strong preliminary University of Michigan reading for July.</span></strong></span></li> <li><span><strong><span>JPY remains a critical focus through next Friday&rsquo;s Bank of Japan meeting, and shouldn&rsquo;t the next wave of JPY strength prove broader than the first one?</span></strong></span></li> <li><span><strong><span>UK June CPI is up mid-week and offers a status check on recent sterling rally</span></strong></span></li> </ul> <p><span >The US dollar bounced back modestly on Friday as US treasury yields backed up on a strong surge in the preliminary July University of Michigan sentiment numbers. The survey showed both Present Situation and Expectations readings surging some seven points to their highest levels since 2021. But the damage done to the greenback was decisive and will likely remain that way unless we get a huge shift back to negative sentiment.</span></p> <p><span>Looking at the US macro calendar for this week, we only have the regional manufacturing reports dribbling in starting with today&rsquo;s July Empire Manufacturing and the June Retail Sales report on Tuesday. The housing market data up Wednesday is unreliable as a general economic indicator because strength in the NAHB survey (activity related to new home builds) and Housing Starts/Building Permits is to a large degree linked to low supply of existing homes as those sitting on record-low pandemic era mortgages stay put to the degree they can to enjoy low mortgage servicing costs. The housing market is certainly bifurcated as well, as a the largest number of multifamily units are set to hit the market this year and next since the 1980&rsquo;s, pressuring rents. So besides these items, we only have a weekly jobless claims number this Thursday and June Consumer Confidence survey next Tuesday ahead of next Wednesday&rsquo;s FOMC meeting. The Fed will hike next week, with the strength of guidance. If equities remain anywhere near current levels or higher, the Fed can easily indicate a bias to hike once more without &ldquo;pre-committing&rdquo;. The market figures the odds for an additional tightening move after next week are rather low, with the first Fed rate cut now priced for March of next year.</span></p> <p><span><strong><span>JPY remains a key focus through next Friday<br /> </span></strong></span><span >The JPY made its first big move starting the Friday before last, and with much of the focus on a weaker US dollar, USDJPY suffered a massive markdown from 145.00 to the low 137.00&rsquo;s. The lows Friday were just above the 200-day moving average near 137.00, a key technical milestone that could open for 130.00 eventually if broken. Given that the trajectory for the ECB will likely largely track the Fed&rsquo;s with a slight delay, why should EURJPY be trading up here if the Bank of Japan is finally set to shift to a tightening posture this year? Thoughts on the EURJPY chart below. And if we get a weaker than expected UK CPI number Wednesday, GBPJPY will likely prove a very volatile pair this week. Note that Japan reports its June national inflation data this Friday and that 10-year Japanese JGB&rsquo;s are traded within two basis points of the 0.50% top of the yield-curve-control &ldquo;band&rdquo;. </span><span ></span></p> <p><span><strong><span>Chart: EURJPY<br /> </span></strong></span><span >With the ECB also seen reaching its terminal rate soon (market looking for two more hike through year end- one at next week&rsquo;s ECB meeting and another in either September or October) and with the Euro&rsquo;s real effective and trade-weighted exchange rate value on a nearly vertical trajectory, the Euro is looking very rich against the Japanese yen in a scenario of continuing deceleration of ECB expectations combined with even marginal tightening of BoJ policy in the months ahead. The technical cracks in EURJPY are few here, as we would need to unwind the entire rally extension above 150.00 to suggest a major top may be in place, starting with a breakdown through the 153.50 pivot from earlier this month. Nonetheless, I am watching for downside risks.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/17_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>GBP: Key test on this Wednesday&rsquo;s CPI<br /> </span></strong></span><span >In last Thursday&rsquo;s FX Update, I asked whether the sterling rally was showing signs of exhaustion after new lows for the year last Tuesday were rejected Wednesday. We are getting a bit of confirmation of further sterling weakness with an extension higher in EURGBP today, but the real test ahead is Wednesday&rsquo;s June UK CPI data. We know that Governor Bailey is convinced that inflation is set to fall sharply later this year and after two months of much hotter than expected core inflation data, the market will likely be very sensitive to any downside miss. </span><span >&nbsp;</span><span >The Y/Y core inflation is expected unchanged at 7.1% and we may or may not get a negative surprise, but the volatility risk looks skewed more toward the downside than the upside for sterling this week after its remarkable run as the strongest G10 currency this year.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >Pronounced USD and CNH weakness (China reporting weak numbers overnight) are somewhat surprisingly nearly matched by the weak Canadian dollar here On the positive side, the sudden revival of the Scandies stands out on the positive side. The flat JPY reading shows how large a shift is needed to get the JPY on proper rising trend trajectory as so far, it has merely erased the prior weakness.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/17_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >USDCAD was an interesting sour note for the USD bears on Friday, reversing from new lows of the year below 1.3100 to close well above 1.3200. Note some of the remarkably stretched trend readings in USDCHF, EURUSD and GBPUSD and EURCNH, etc&hellip;</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/17_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1200 &ndash; Poland Jun. Core CPI </span></li> <li><span>1230 &ndash; US Jul. Empire Manufacturing </span></li> <li><span>0130 &ndash; Australia RBA Minutes</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 17 Jul 2023 09:15:00 Z2023-09-23T01:28:56Z{3C9FD5C3-6B2D-4A2A-86DF-9A6B19C2B4CF}https://www.home.saxo/en-hk/content/articles/forex/fx-update-usd-breakdown-likely-to-extend-13072023John Hardyproduct-forexHighlighted articlesFX Update: USD breakdown likely set to extend.<div class="article-excerpt">A big breakdown in the US dollar unfolded after a soft US June CPI print, which has the market aggressively marking up the rate cut odds for 2024, perhaps unjustifiably so.</div><div class="article-rte"><div class="rte--output"><p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>USD gutted by low US inflation figures &ndash; need more data, but the move is technically decisive</span></strong></span></li> <li><span><strong><span>The focus shifts somewhat away from JPY strength, as pro-cyclical currencies jumped yesterday. </span></strong></span></li> <li><span><strong><span>EURGBP bullish reversal = some sterling exhaustion setting in?</span></strong></span></li> </ul> <p><span><strong><span>USD breaks lower after soft US CPI<br /> </span></strong></span><span >The June US CPI data came in softer than expected, triggering an ugly slide in the US dollar as the core numbers were particularly in focus: not only missing the 0.3% M/M that was expected, but narrowly missing dropping below 0.2% with a 0.157% reading. The Y/Y number fell to 4.8%, the lowest since last 2021, and the headline dropped all the way to 3.0% on what will prove the most favourable year-on-year basing comparison for some time. There are some ironies here, in that the big come down in inflation on key expenses like energy, the fact that many US homeowners have stayed put in their current residence after their refinancing at record cheap mortgage rates during the 2020-21 pandemic years, and with higher incomes from strong wage gains, risk seeing services inflation in particular staying at a higher level for now as economic growth could extend before the long and lagging effects of the Fed&rsquo;s policy tightening and banks&rsquo; credit tightening begin to weigh.</span></p> <p><span>Another potential contributor to a reheating of the US economy and inflation are the financial markets themselves, as options-based compensation will be a boon for elite incomes and the wealth effect (feeling more confident about consuming because portfolios are in good shape) may kick in. For now, this does not concern the market, which seems happy to trade what we called the Disinflationary-no-landing-nirvana scenario in today&rsquo;s Saxo Market Call podcast, which has Fed policy expectations for next year dropping like a stone from their peak of just a week ago. Even as the market holds its view that the Fed will likely hike the week after next, it is pricing more than 150 basis points of Fed rate cuts by end of next year. The June 2024 SOFR contract has rallied more than 50 basis points off its lows of a week ago. All of this apparently without fretting a recession (the easing yields feeding a powerful extension of risk-on in asset markets). Sounds to good to be true and the irony here may be that the market will have to price a higher Fed peak &ndash; but that is getting ahead of ourselves.</span></p> <p><span>The move lower in the US dollar has such strong momentum, it may carry through for a while here, starting with a level like 1.1500 for EURUSD and 0.7000+ for AUDUSD. Whether the AUD and other pro-cyclical currencies (SEK suddenly a phoenix-from-the-flames yesterday) continue to get a leg up in this market will depend on whether the global growth story shapes up more strongly in coming weeks, especially from China, which reported ugly trade numbers for June overnight (probably what kept AUD on the soft side in the AUDNZD cross &ndash; but watching metals prices for a possible shift in sentiment more in favour of AUD). The recent broad JPY strength is suddenly less of a focus with risk appetite enjoying a strong spell. If energy prices extend after their breakout and the sentiment on global growth improves, JPY performance could prove indifferent for a spell.</span></p> <p><span><strong><span>Chart: EURUSD<br /> </span></strong></span><span >EURUSD has broken up above the year highs just ahead of 1.1100, extending above 1.1160 in today&rsquo;s trade and could be on its way to 1.1500 or even higher, although the move is so steep, some consolidation could set in, perhaps as soon as the 1.1275 (the 61.8% Fibo of the entire sell-off from post-pandemic highs to the panic lows of late last year)? Only some climax reversal in the next few session would bring some caution for bulls here.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/13_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>GBP: Some exhaustion setting in?<br /> </span></strong></span><span >Sterling has been the strongest performer among G-10 currencies this year, lifted by the hot UK inflation numbers that have continued higher at the core in recent months to new cycle highs and strong wage increases that risk second-round effects. But two factors could hold back sterling in broad terms from here. The first is that if we are seeing a wider anticipation of slower inflation, the market has perhaps priced in more further tightening from the BoE than it can deliver. The other factor is that if we are switching to a growth focus globally, the UK has less potential for a growth rebound, hampered by higher policy rates weighing on the economy, particularly through the impact on household budgets from the incoming brutal mortgage resets, and no real leverage to global demand on the export side of its economy. Yesterday&rsquo;s EURGBP reversal from new lows for the year may be a sign of this, but if the outlook picks up more broadly on growth, other sterling pairs could be in for a considerable (further) correction, for example GBPAUD and GBPSEK.</span></p> <p><span>The <strong>Bank of Canada</strong> was largely a non-event, with the BoC hiking as the market was partially leaning for, but with only conditional guidance on more hikes to come from governor Macklem. Oil prices and risk sentiment in the driver&rsquo;s seat for USDCAD here after a string of tepid Canadian data on balance.</span></p> <p><span>Next up we have<strong> today&rsquo;s weekly US initial weekly jobless claims</strong>, which have posted two weeks below 250k after a series of weeks well above that level, although continuing claims have been sliding consistently from the early April peak. The <strong>Fed&rsquo;s Waller</strong> (hawkish) is up speaking tonight on the economic outlook.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The US dollar momentum shift has been downright stunning over the last five days (-6.8), while CNH remains weak even as USDCNH has corrected back lower. CAD often follows USD in the crosses, while the Scandies are on fire and sterling momentum has eased off.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/13_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Some very strong trend readings suggest very extended trends here &ndash; can we continue to see the kind of momentum we have seen of late in a pair like GBPUSD which has hit a very high trend reading of 7.8? Watching the trend status of JPY pairs now that the broad JPY strength has suddenly eased off, as not all JPY pairs shifted to the negative side on the JPY rally.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/13_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1130 &ndash; ECB meeting minutes </span></li> <li><span>1230 &ndash; US Jun. PPI </span></li> <li><span>1230 &ndash; US Weekly Initial Jobless Claims </span></li> <li><span>1700 &ndash; US Treasury to auction 30-year T-bonds </span></li> <li><span>2245 &ndash; US Fed&rsquo;s Waller (Voter) to speak on Economic Outlook</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 13 Jul 2023 10:15:00 Z2023-09-23T02:27:18Z{CE2D88BF-92E2-4D54-91DE-B8E6F301EAB1}https://www.home.saxo/en-hk/content/articles/forex/fx-update-big-stakes-for-usd-and-jpy-over-us-cpi-release-12072023John Hardyproduct-forexHighlighted articlesFX Update: Big stakes for USD and JPY over US CPI release.<div class="article-excerpt">A big test for the recent steep USDJPY slide over today’s June CPI release as the market may need soft US June inflation for the slide to continue on the idea that we are set for BoJ vs rest-of-world policy convergence.</div><div class="article-rte"><div class="rte--output"><p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Brutal JPY strengthening move, USDJPY and US dollar in general face key test over US CPI release today.</span></strong></span></li> <li><span><strong><span>Bank of Canada announcement: finely balanced odds for a hike, but it will be a dovish hike if we do get one.</span></strong></span></li> </ul> <p><span><strong><span>USD and JPY over US CPI today: big stakes<br /> </span></strong></span><span >The USDJPY correction lower has continued with solid momentum, testing well below 140.00 today. While the JPY is broadly stronger, the impact of USDJPY selling has been felt across many other USD pair as well, particularly vs European FX. Some strong lending data out of China and official praise of the Chinese tech sector offered a considerable boost to CNH overnight, helping the USD broadly lower in the Asian session. Much of the JPY strengthening has built since the Bank of Japan reported stronger than expected wage growth in May of 2.5% year-on-year and on a Bank of Japan deputy governor Uchida late last week discussing policy tweaks, if still in cautious terms. This is leading to bets that we could be set for a dramatic BoJ policy convergence with the rest of the world, possibly starting as soon as the July BoJ meeting.</span></p> <p><span>That brings us to today&rsquo;s CPI report from the US and whether it can aggravate and extend recent developments and this BoJ convergence story on softer than expected core inflation data or if the market is getting ahead of itself. We would need a month-on-month print for the June CPI number today that is below the 0.3% expected to really test that scenario. An in-line print will test conviction in recent developments (given the hard lean on disinflationary outlook), while a hotter than expected print could engineer a large reversal and save the US dollar for now. For USDJPY, long US yields are also critical as a coincident indicator after they recently pulled above 4.00%, only to retreat sharply.</span></p> <p><span><strong><span>USD technical stakes<br /> </span></strong></span><span >The US dollar picture is quite mixed across G10. In the case of USDJPY, we have merely unwound the prior strengthening since early June. </span><span >&nbsp;</span><span >EURUSD, meanwhile, trades some 60 points below the high of the year just below 1.1100, while GBPUSD has broken free to the upside. AUDUSD is in a completely different place &ndash; still rangebound and even reversing back lower after an attempt to break above local resistance in the 0.6700 overnight. (GBPAUD has risen to more than three-year highs and ex-pandemic the highest level in seven years). The technical of the USD index are very clearly etched here, with the double bottom just below 100.80 from early February and mid-April now only some 0.50% from the overnight lows. Trend followers would likely pounce on a break and hold below that level.</span></p> <p><span><strong><span>Chart: USDJPY<br /> </span></strong></span><span >In the update Monday, I focused on the positioning risks in the FX market (using US currency futures, admittedly a small sideshow relative to the total market, but solidly indicative of trend following behaviour and conviction). The JPY short has been a notable standout, but sterling, euro and Mexican peso speculative longs are also prominent, and these currencies have remained strong save for a brief wipe-out in the Mexican peso last week, so we can&rsquo;t discuss a broad positioning readjustment just yet, although certainly stressed short JPY positions have no doubt helped to fuel this JPY rally. What next for USDJPY depends on the status of the Japan vs. rest-of-world policy convergence narrative as discussed above. So far, we have a very large and steep correction on our hands. The next important levels lower are the prior resistance coming in just below 138.00 and then perhaps the 137.15 area 200-day moving average, although the major 38.2% retracement of the rally off the March lows has already come into view. To the upside, a strong close today after perhaps hotter than expected core US CPI data later could put in a strong support line at today&rsquo;s lows &ndash; the situation feels pivotal.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/12_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Bank of Canada preview<br /> </span></strong></span><span >The Bank of Canada restarted its hiking cycle at its May meeting after a pause earlier this year to assess the impact of its tightening regime. </span><span >A slim </span><span >majority of</span><span > observers are looking for another 25-bp nudge higher to take the policy rate to 5.00%</span><span >. On the one hand, it&rsquo;s worth asking why the BoC should bother to restart its tightening regime in May only to </span><span >immediately</span><span > pause at the very next meeting.</span><span > </span><span >B</span><span >ut d</span><span >ata out of Canada has </span><span >eased the pressure on the Bank of Canada to do more, after May CPI came in softer than expected at a 3.8% &ldquo;trim&rdquo; core rate and the latest earnings data was surprisingly weak, as was a June Ivey PMI near 50. So of all the scenarios, I would rule out the most hawkish ones given the softer data. Even if we do get a hike, the guidance will likely be dovish to non-committal.</span></p> <p><span>A side note: the Bank of Canada must have its eye on the housing market and the eventual mortgage reset ball in coming quarters, as Canadian mortgage debt is based on five-year mortgage debt, although much of that was likely refinanced in 2020-2021. Still, the higher rates have slowed new construction at a time when Canada&rsquo;s immigration has picked up notably, and rents are rocketing higher on the supply shortage. One data series I found shows rents up 2.7% in just the first five months of this year. This means that the more the BoC ratchets up rates, the more rents may rise, a reflexive relationship not likely in any of the BoC&rsquo;s models.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The JPY momentum shift has been profound over the last 5 days. It is hard to take the positive trend reading seriously just yet as the prior weakening of the JPY was on such a large scale that more evidence is required to establish that we are in a JPY uptrend. Elsewhere, the sterling rally has continued, with EURGBP testing new lows for the year yesterday and GBPUSD testing new highs and NOK attracted attention yesterday on EURNOK breaking down.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/12_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Some specific developments mentioned above, but do note that EURJPY is not in a downtrend despite the negative reading now on our trending indicator, which does not expand the &ldquo;window size&rdquo; and can&rsquo;t be aware that this large EURJPY sell-off sits atop a massive prior weakening since early April. More evidence needed there and in other JPY pairs before we can raw conclusions. Note that spot gold (XAUUSD) is sitting on the verge of a downside flip &ndash; the 1900 level critical there.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/12_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1230 &ndash; US June CPI </span></li> <li><span>1345 &ndash; US Fed&rsquo;s Kashkari (Voter 2023) to speak </span></li> <li><span>1400 &ndash; Canada Bank of Canada Rate Decision </span></li> <li>1700 &ndash; US Treasury to auction 10-year notes</li> <li><span>1800 &ndash; US Fed&rsquo;s Beige Book </span></li> <li><span>2000 &ndash; US Fed&rsquo;s Mester (voter 2024) to speak </span></li> <li><span>2100 &ndash; New Zealand Jun. REINZ House Sales</span></li> <li><span>2301 &ndash; UK Jun. RICS House Price Balance </span></li> <li><span>0100 &ndash; Australia Jul. Consumer Inflation Expectation</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 12 Jul 2023 09:25:00 Z2023-09-23T06:47:20Z{17981CD5-C087-4BE5-A95E-7E4AE9F5B87A}https://www.home.saxo/en-hk/content/articles/forex/fx-update-stretched-positioning-is-pent-up-energy-10072023John Hardyproduct-forexHighlighted articlesFX Update: Stretched positioning is pent-up energy.<div class="article-excerpt">The USD was marked lower on Friday after weak payrolls growth and negative revisions. Today, we note stretched positioning in yen, sterling and elsewhere that represent stored energy if risk sentiment suffers a bad break.</div><div class="article-rte"><div class="rte--output"><p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>US jobs report Friday fails to confirm the wildly strong ADP payrolls numbers from the prior day.</span></strong></span></li> <li><span><strong><span>Upside risks for the JPY due to positioning. If we follow positioning logic &ndash; could be broad phenomenon.</span></strong></span></li> <li><span><strong><span>AUD remains soft on China CPI pointing to deflation risks, NOK jumps on hot CPI </span></strong></span></li> <li><span><strong><span>US CPI the focus this week, but RBNZ and Bank of Canada also on tap.</span></strong></span></li> </ul> <p><span>The official US June jobs report on Friday failed to confirm the wildly strong June ADP payrolls growth numbers from the prior day. Not only was the Nonfarm Payrolls print a touch softer than expected at 209k vs. consensus near 230k, but the revisions of the prior two months&rsquo; data was -110k. On the positive side, average hourly earnings were a touch firmer than expected despite an 0.1 hour uptick in the average weekly hours (which increase the denominator). The market reaction was quite brutal for the US dollar as front-end US yields pushed lower still after a spike higher and reverse the prior day. Longer US yields actually rose, steepening the US treasury yield curve further.</span></p> <p><span><strong><span>JPY firmed again Friday &ndash; plenty more room for positioning to cause trouble for shorts.<br /> </span></strong></span><span >Following up on the stronger JPY that I discussed in Friday&rsquo;s piece, in which I noted how remarkable it is to see the coincidence of a stronger JPY late last week even as US long treasury yields also rose sharply (particularly on Thursday&rsquo;s wild US June ADP payrolls print). The JPY-US 10-year correlation, as measured by the R-squared for the last 500 trading sessions is 0.89. As I argued Friday, one explanation for the action late last week was from a positioning angle: simply that short positioning in the JPY is quite aggressive, and when volatility across markets picks up on weak risk sentiment, position unwinding often sets in.</span></p> <p><span>To quote my piece on Friday: </span></p> <p><span>&ldquo;&hellip;.any event that sparks significant general volatility and risk aversion can lead to position squaring in what have been the most profitable trades &ndash; like long MXNJPY and CADJPY, BRLJPY, etc. Some of those flows were predicated on the idea that rates were set to fall as EM banks might prove the first to cut rates as growth and inflation ease off. Those flows can overwhelm other considerations (like the prior negative focus on the JPY on rising global yields, especially at the long end of yield curves &ndash; continuing to challenge the Bank of Japan&rsquo;s ongoing easing, etc.). &ldquo;</span></p> <p><span>The firm JPY on Thursday might be have been driven by the dynamic described above, as we also saw very weak EM currencies that day. But Friday&rsquo;s jobs report took the steam out of some of the prior day&rsquo;s developments, as MXN and sterling jumped back higher on the US jobs data lowering yields at the front end of the US yield curve as the crazy jump in the ADP numbers was not confirmed. </span></p> <p><span><strong><span>Chart: US Non-commercial futures market positioning: JPY, GBP, MXN, EUR (vs. USD).<br /> </span></strong></span><span >Overall FX positioning has likely not yet been significantly unwound by the action last week, and if risk sentiment weakens further, I would expect significant further risk of JPY strength, possibly indiscriminate across all JPY pairs, but more likely concentrated against other currencies where positioning is the wrong way around: on that note GBPJPY stands out in the US futures positioning data as noted below, with the non-commercial participants the longest they have been of sterling versus the US dollar save for three other occasions since the global financial crisis. Arguably, the most powerful signal supporting a further JPY rally this week would be softer than expected US CPI inflation numbers that fails to support risk sentiment, but anything that engineers significantly weaker risk sentiment may be enough to drive a JPY rally.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/10_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Tale of diverging CPI&rsquo;s: China versus Norway<br /> </span></strong></span><span >China reported its CPI and PPI for June overnight, with the former coming in at a stunning 0.0% YoY vs. +0.2% expected and core CPI hardly above zero either at 0.4% YoY. PPI was out at -5.4% YoY vs. -5.0% expected and -4.6% in May. China&rsquo;s suddenly deflationary dynamics are getting considerable attention, with Richard Koo, who minted the &ldquo;balance sheet recession&rdquo; term and has been the expert on Japan&rsquo;s experience for years, now seeing a surge in popularity as his framework is now seen highly applicable to China. The latest </span><a rel="noopener noreferrer" href="https://www.bloomberg.com/news/audio/2023-07-07/richard-koo-on-china-s-japanification-risk-podcast?sref=FAeeuM97" target="_blank">Odd Lots podcast</a><span > features Koo as a guest. The soft Chinese inflation data has the AUD limping at the lower end of the range versus the US dollar again.</span></p> <p><span>Norway, on the other hand, is seeing an entirely different inflationary dynamic, as its core &ldquo;underlying&rdquo; inflation metric surged another 0.9% MoM in June and 7.0% YoY, a new cycle high. This and the surge in crude oil prices on Friday have seen NOK making a show of strength as front-end Norwegian yields jump. Watching the sub-11.50 pivot lows from last month for more upside potential for NOK.</span></p> <p><span><strong><span>Macro week ahead: UK employment/earnings, US CPI, RBNZ, BoC<br /> </span></strong></span><span >Plenty to focus on this week on the macro calendar, with the US CPI data the focus of the week on Wednesday. A couple of highlights:</span></p> <p><span><strong><span>TUE</span></strong></span><span>: UK Jun. Payrolls/Claims and May Earnings/Employment data.<br /> The market could prove twitchy on these UK employment and earnings data on significant surprises. There was an enormous surge in claims and drop in payrolls two months back that was entirely revised out in the case of payrolls and revised significantly lower in the case of claims. Earnings registered a 7.2% YoY increase, nearly matching the cycle high from back in 2021.</span></p> <p><span><strong><span>WED</span></strong></span><span>: RBNZ, US June CPI and Bank of Canada</span></p> <p><span>Little drama expected from the<strong> RBNZ</strong> this week as Orr and company were early and quick to tighten and the market figures they are happy with the current level until possibly October or November, depending on where inflation is headed &ndash; and the quarterly Q2 inflation data is up next week, carrying more weight, likely, than anything that the RBNZ has to say.</span></p> <p><span>The <strong>US June CPI</strong> is the data, with </span><span>the headline number expected to drop all the way to 3.1% YoY from 4.0% in May due to basing effects, as the worst of the spike in gasoline prices hit in June of last year. The core inflation is expected at +0.3% MoM and +5.0% YoY vs. 5.3% YoY in May and a peak rate last September of 6.6%. The PCE data series has shown somewhat stickier core inflation than this BLS&rsquo; CPI data series.</span></p> <p><span>The <strong>Bank of Canada</strong> is priced significantly better than 50/50 to hike another 25 basis points, which would take the rate to 5.00%. It makes sense for the Bank of Canada to hike again &ndash; why restart the hiking cycle in June only to pause once again? The guidance will be more important than the decision on whether to hike. USDCAD reversed sharply on Friday after the US jobs data (with ripping Canadian jobs data on Friday providing most of the impetus, together with resurgent oil prices).</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The JPY down-trend has lost considerable strength, but it will take more doing to reverse. The US dollar in focus now after Friday&rsquo;s sell-off, with Wednesday&rsquo;s CPI the next test there. NOK is strong on today&rsquo;s CPI release and the oil rebound Friday.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/10_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >AUDJPY is the first JPY cross after CNHJPY to cross to a negative trend reading, with USDJPY not terrible far away after 65 trading days &ndash; 13 weeks in positive territory. GBPJPY has been in a positive trend for 73 trading days.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/10_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1230 &ndash; Canada May Building Permits </span></li> <li><span>1500 &ndash; US Fed&rsquo;s Mester (Voter in 2024) to speak </span></li> <li><span>1500 &ndash; UK Bank of England Governor Bailey to speak </span></li> <li><span>1600 &ndash; US Fed&rsquo;s Bostic (Voter in 2024) to speak </span></li> <li><span>0030 &ndash; Australia Jul. Westpac Consumer Confidence </span></li> <li><span>0130 &ndash; Australia Jun. NAB Business Confidence</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 10 Jul 2023 11:35:00 Z2023-09-23T01:44:57Z{A1461900-C2E8-4FF6-8645-62DA21F31AA3}https://www.home.saxo/en-hk/content/articles/forex/fx-update-strong-us-data-unsettles-the-entire-market-narrative-07072023John Hardyproduct-forexHighlighted articlesFX Update: Strong US data unsettles the entire market narrative<div class="article-excerpt">Strong US data stirs the pot via higher long US treasury yields and tighter financial conditions. Confounding the usual JPY-yield correlation, the JPY is sharply stronger on pressure on carry trades.</div><div class="article-rte"><div class="rte--output"><p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>USD trades mixed after strong US data pumps long treasury yields higher still.</span></strong></span></li> <li><span><strong><span>Carry trades (long MXN, HUF, BRL, others) versus especially the JPY are under huge pressure, as financial conditions are a stronger focus than normal JPY-US 10yr correlation.</span></strong></span></li> </ul> <p><span>Strong US data yesterday risks entirely resetting the market narrative if confirmed in today&rsquo;s June jobs report, but more importantly in the coming month or more of additional data. Simply put, the market is poorly positioned for a reheating of the US economy and yesterday proved that.</span></p> <p><span>The June ADP private payrolls change registered an astounding +497k increase, far higher than any pre-pandemic monthly payrolls growth number stretching back to the 2010 beginning of that data series, not to mention far higher than the +225k expectations. The second bit of evidence that the US economy remains at cruising altitude or better was a strong June ISM Services survey at 53.9 vs. 51.2 expected and the 50.3 from May, with Employment improving sharply to 53.1 from 49.2 and New Orders a robust 55.5. Secondary data didn&rsquo;t support the chief developments, but was seen as less important (initial jobless claims rebounding to 248k and a big drop in the JOLTS job openings survey, although continuing weekly claims continues to drop from the early May highs.)</span></p> <p><span>The reaction function across markets was as interesting as the data itself. No surprise to see the initial US dollar strength as US yields jumped higher, although note that the move at the long end of the yield curve held into today&rsquo;s session, while the move was partially erased at the front-end of the yield curve (yield curve steepening). Looking across the yield curve, it is remarkable that the market refuses to mark the Fed&rsquo;s terminal rate higher, preferring instead to remove expectations of rate cuts out the curve and sending the belly and long end of the curve flying. Risk sentiment took the higher yields on the nose, with an ugly correction in US equities and Japanese equities even more so overnight on the firmer (!) JPY &ndash; more below.</span></p> <p><span>Next week sees the US June CPI on Tuesday and 3-year, 10-year and 30-year treasury auctions on Tue-Thu. The first real Fed speaker of note could be Christopher Waller of the Board of Governors, who will speak on the economic outlook next Thursday. He is considered one of the more hawkish members. Has the market got the Fed wrong on its potential to hike even more through the December FOMC than the June dot-plot projections suggest (currently priced for 37 basis points more tightening vs. the median +50 bps). </span></p> <p><span><strong><span>JPY firms as financial conditions tighten<br /> </span></strong></span><span >That&rsquo;s right: the JPY firmed overnight and into today&rsquo;s session despite the surge in yields at the long end of the key sovereign bond yield curves. The JPY-US 10-year correlation, or r-squared for the last 500 trading sessions is 0.89, just to underline how unusual it is to see these two developments simultaneously. One explanation for yesterday&rsquo;s action is from a positioning angle: simply that short positioning in the JPY is very aggressive, particularly in carry trades against high-yielding currencies, so that any event that sparks significant general volatility and risk aversion can lead to position squaring in what have been the most profitable trades &ndash; like long MXNJPY and CADJPY, BRLJPY, etc. Some of those flows were predicated on the idea that rates were set to fall as EM banks might prove the first to cut rates as growth and inflation ease off. Those flows can overwhelm other considerations (like the prior negative focus on the JPY on rising global yields, especially at the long end of yield curves &ndash; continuing to challenge the Bank of Japan&rsquo;s ongoing easing, etc.). To know the answer, we&rsquo;ll need some more time, but if US yields continue to rise, I would lean on the yields as the signal that the JPY must adhere to, as long as the Bank of Japan stands pat (USDJPY finding support eventually). One thing to note is that while US and European 10-year yields have jumped aggressively here, the 10-year JGB continues to trade well south of the 0.50% band limit imposed by YCC.</span></p> <p><span>Overnight, we saw May wages data from Japan that showed a 2.5% YoY increase, far above the 1.2% increase from April and last year&rsquo;s average just above 1.5%, suggesting that the March wage negotiations are beginning to kick in, but there wasn&rsquo;t much of a market reaction around the time of the data release at 2330 GMT. Bank of Japan Deputy Governor Uchida was out speaking and offered few signs that the July 28 BoJ meeting will bring any policy tweak, noting that there are more risks in going too quickly than too slowly in normalizing policy in an <a rel="noopener noreferrer" href="https://asia.nikkei.com/Editor-s-Picks/Interview/BOJ-deputy-chief-urges-balanced-decision-on-yield-curve-control" target="_blank">interview with Nikkei</a>.</span></p> <p><span><strong><span>Chart: USDJPY<br /> </span></strong></span><span >So far, the USDJPY consolidation looks like a standard one and doesn&rsquo;t even begin to threaten the uptrend until it is working south of perhaps 141.00, although a trendline is in play here quite soon. As noted above, there is considerable tension in the JPY and US long treasury yields rallying at the same time &ndash; will the very persistent long-term correlation re-establish or is there a greater threat of more JPY upside if financial conditions continue to tighten (carry trades, etc. noted above), even if US yields pull higher still? How USDJPY closes today after the US June jobs report and through next Wednesday&rsquo;s CPI print.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/07_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The news on the FX board is in the shifts in momentum in most cases, with the JPY and CAD moving most quickly in opposite directions over the last few sessions. That strong NZD could face a challenge on next week&rsquo;s RBNZ meeting. Meanwhile, there is no real dollar picture to discuss here &ndash; can that remain the case if US treasury yields continue to soar?</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/07_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >We have USDCAD trying to flip to the positive side here &ndash; important jobs data from Canada today as well. EURNOK pulled back higher, like on the NOK-sensitivity to risk sentiment. Norway reports CPI on Monday. EURUSD is offering no clues on next direction &ndash; waiting for 1.1000 or a stronger sub-1.0850 move there.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/07_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1230 &ndash; US Jun. Nonfarm Payrolls Change </span></li> <li><span>1230 &ndash; US Jun. Unemployment Rate </span></li> <li><span>1230 &ndash; US Jun. Average Hourly Earnings<br /> </span></li> <li><span>1230 - Canada Jun. Employment Data</span></li> <li><span>1430 &ndash; EIA's Natural Gas Storage Change (delayed from Thursday) </span></li> <li><span>1430 - UK BoE's Catherine Mann to speak</span></li> <li><span>1530 - US Fed's Goolsbee (Voter 2023) to speak</span></li> <li><span>1645 - ECB President Lagarde to speak</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 07 Jul 2023 10:55:00 Z2023-09-22T21:27:33Z{0C2CEC15-9247-4D38-9505-8B28DC43744A}https://www.home.saxo/en-hk/content/articles/quarterly-outlook/q3-2023-summary-ai---the-good-the-bad-and-the-bubble-06072023John HardyPrimary-Quarterly OutlookMonthly NewsletterQ3 2023 Summary AI - The Good the Bad and the Bubble<div class="article-excerpt">This outlook zeroes in on the launch of artificial intelligence. It looks at the technology as potentially groundbreaking, but also as a risk for stock markets. </div><div class="article-rte"><div class="rte--output"><p>In this Outlook, our chief focus is on the current market impact of the AI theme across markets and around the world. But Steen&rsquo;s introductory piece also argues that market participants are making a mistake in believing that the current market cycle will play out like previous ones, as inflation is set to stay higher for longer than the market anticipates, which will eventually register as an enormous surprise, given that yield curves in most markets are pricing significant eventual policy easing starting early next year and a glide path to a soft landing. The complacency surrounding that disinflationary and soft-landing scenario have kept long yield anchored and allowed equity markets, and particularly AI-linked names, to inflate perilously.</p> <p>Also on the AI theme that has dominated focus over the last quarter:</p> <p>Equity strategist Peter Garnry argues that the emergence of advanced AI systems such as GPT-4 from OpenAI is by far the most surprising event this year, a phenomenon that has turned everything on its head. Further, he writes that the AI-hyped rally has pushed the US equity market to new extremes, even as the benefits and risks of this new technology are hotly debated. He predicts that we risk seeing US and China engaging in an AI arms race.</p> <p>Our Greater China strategist, Redmond Wong, points to the challenges China faces in the field of generative AI as it navigates a global order of fragmentation. The success of generative AI breakthroughs in the US, coupled with limited computing power and geopolitical tensions, has threatened to break down China&rsquo;s virtuous cycle of technology application, productivity enhancement and growth. </p> <p>Macro strategist Charu Chanana highlights Japan&rsquo;s expertise in semiconductor manufacturing and robotic integration, suggesting these could be the foundation of a very strong presence in AI. She notes that Japanese equities and artificial intelligence combine the two most powerful market themes of this year.</p> <p>Cryptocurrency analyst Mads Eberhardt notes that AI fever has stolen the spotlight from blockchain technology and the cryptocurrency market generally, pushing the space further into speculative no man&rsquo;s land. Despite the contrasting performance between crypto and AI-linked assets, there are striking similarities, especially the risk of bubble-like dynamics. </p> <p>Investment Coach Hans Oudshoorn outlines in his piece how investors can gain exposure to AI via ETFs that provide considerable diversification, but still noting the risks from valuations that have become very elevated in places.</p> <p>In addition to the AI focus, this report also delves into the outlook across major asset classes:</p> <p>In currencies, FX strategist John Hardy notes that USD shorts could be set for a vicious reality check if the US economy remains resilient and core inflation remains sticky, possibly engaging both sides of the "USD smile" that drive USD strength: the Fed remaining on the warpath and market turmoil.&nbsp; John notes that the stakes are even higher for the Japanese yen if the longer yields of the major sovereign yield curves have to price in a new economic acceleration, as the BoJ will have to eventually capitulate on its yield-curve-control policy. </p> <p>In commodities, commodity strategist Ole Hansen suggests that the commodity sector looks set to start the third quarter on a firmer footing after months of weakness saw a partial reversal during June. Ole notes that strong gains were at times driven by a weaker US dollar, but specific developments in each sector also weighed. Most concerning for is the risk of higher food prices into the autumn, as several key growing regions battle with hot and dry weather conditions sparked by the first El Ni&ntilde;o weather pattern in years.</p> <p>Fixed income strategist Althea Spinozzi argues that central banks face a troubling dilemma: if they really want to get ahead of inflation, they will need to burst asset bubbles created by a decade of quantitative easing (QE) and trigger a recession. But she asks whether they are willing to take policy tightening that far and ever win the inflation fight.</p></div></div><div class="article-video"><iframe title="" src="//saxobank.23video.com/13846859.ihtml/player.html?source=embed&photo_id=86714475"></iframe></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/thought-leadership/quarterly-outlook">Quarterly Outlook</a> <span>Monthly Newsletter</span></div>Thu, 06 Jul 2023 06:00:00 Z2023-07-06T05:26:51Z{DD105C6E-EF4B-45A4-8FBD-C90E60292CE3}https://www.home.saxo/en-hk/content/articles/quarterly-outlook/the-usd-smile-and-the-jpy-dam-break-06072023John HardyPrimary-Quarterly OutlookPrimary-Quarterly Outlook 1st rowFX: The USD smile and the JPY dam break<div class="article-excerpt">Q2 brought a reacceleration of central bank tightening expectations, as impact of the bank turmoil from March faded quickly. </div><div class="article-rte"><div class="rte--output"><p>We composed our Q2 quarterly update in the thick of the fallout just after the March banking turmoil. The cratering of investor confidence at the time and the belief that this would bring forward the end of the central bank tightening cycle due to in incoming credit crunch wrong-footed many, including this analyst. Instead, as core inflation levels nearly everywhere have proven sticky and economies largely resilient, global central banks have largely continued and even resumed tightening rates. As of late Q2, forward expectations for the Fed policy "terminal rate" have crept back close to the cycle highs from early March, before Silicon Valley Bank's collapse. Elsewhere, two G10 central banks, the Bank of Canada and the Reserve Bank of Australia, abandoned the pause in their tightening cycles and resumed hiking rates in Q2. So yes, the banking turmoil was a milestone pointing in the direction of further tightening on credit that will eventually lead to an economic slowdown, but it looks like &ldquo;eventually&rdquo; will prove much further over the horizon than we anticipated.</p> <p>The most extreme example of a reacceleration in forward tightening expectations in Q2 was for the Bank of England, which reported an alarming spike in core inflation to a new cycle high of 6.8% in April with the market pricing BoE tightening to continue through early 2024. And yet global risk sentiment continues to soar, as markets apparently continue to believe in a Goldilocks soft landing of disinflation and no recession, or at least an extremely shallow one. That's the only way to interpret strong risk sentiment in an environment of increasingly inverted yield curves.</p> <h4><strong>The USD to smile and potential USD strength in Q3</strong></h4> <p>Indeed, the markets remain reluctant to believe that inflationary dynamics and the economic cycle will extend much longer and were quick to celebrate the June FOMC rate tightening pause from the Fed, even as Powell and company penciled in two more rate hikes for later in the year. Powell's declaration of data dependency in the press conference at that meeting has set up markets for a wild ride in Q3 and Q4 on incoming data releases. The market will be poorly prepared for resilient inflation and activity data and for any ensuing need to reprice the Fed. </p> <p>This brings us to the "USD smile", a rule-of-thumb model for what drives the US dollar. The one side of the smile is the USD rising when there is any major form of global market turmoil. When markets are stressed, investors run for safety and scramble for the US dollars needed to service USD-denominated assets, which dominate global liquid assets. Once the Fed intervenes with sufficiently forceful easing to calm markets, the USD retreats. </p> <p>The other side of the smile that drives USD strength is any aggressive rise in US yields, especially at the front end due to Fed tightening (especially 2022, but arguably also 2015, when the contrast of slow Fed tightening with other central banks was great). A USD smile driven by long US treasury yields rise as well (for example, most traumatically from one moment to the next in the 2013 "taper tantrum" and again when both the Fed and market forces took the entire yield curve higher in 2018 after the Trump supply-side tax reforms of the prior year). </p> <p>The middle part of the smile is when there is no significant turmoil or when the Fed is not providing any drama. This allows USD direction to yield to external factors and generally means a weaker USD. For example, once the bulk of Fed tightening was priced by late 2022 and long US treasury yields had peaked (well ahead of what was the peak (so far!) at the front end of the curve this March), the USD eased off and more notable developments elsewhere could take center stage. In the case of late 2022, those developments were the ECB coming in more forcefully with tightening. Later, AUD, CAD and GBP grabbed the spotlight on the notable adjustment in policy expectations noted above.</p> <p>In Q3, our belief is that markets are overconfident in benign outcomes for inflation and therefore for central bank policy. This could engage either or even both sides of the USD smile: sticky inflation and a drum-tight labor market could force the Fed to continue hiking far more than the market imagines as we leave Q2. The most dramatic scenario would be renewed strength in the economy, as this could trigger an unmooring of longer US treasury yields. With global risk sentiment in near euphoria as of late Q2, we're watching the 10-year US Treasury benchmark, which would threaten a reality check and boost the USD as well on a move to new cycle highs. Sure, as long as incoming data cooperates with the disinflation and soft landing and anchored long US yields narrative, the USD can weaken, but beware the USD smile if the music changes.</p> <h4><strong>Waiting for the Bank of Japan dam break</strong></h4> <p>Broad measures of JPY in late Q2 show the currency edging toward the record modern lows posted last fall, even as the weaker USD has meant that USDJPY has yet to challenge the cycle highs. The most obvious driver of the weaker yen in Q2 was the fresh widening of policy spreads, as central banks elsewhere continued to tighten, while the Bank of Japan remains unmoved with its -0.10% policy rate and +/- 0.50% band on 10-year JGB's, or yield-curve-control. Our belief that the economic growth and hiking cycle could extend from here would prove a real challenge for the Bank of Japan and for the very stretched JPY valuation.</p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/thought-leadership/quarterly-outlook">Quarterly Outlook</a> <a href="https://www.home.saxo/en-hk/insights/news-and-research/thought-leadership/quarterly-outlook">Quarterly Outlook 1st row</a></div>Thu, 06 Jul 2023 06:00:00 Z2023-07-06T05:26:52Z{46252FE6-9483-42AA-879D-07635FBEE017}https://www.home.saxo/en-hk/content/articles/forex/fx-update-still-waiting-for-that-usd-pivot-03072023John Hardyproduct-forexHighlighted articlesFX Update: Still waiting for that USD pivot.<div class="article-excerpt">The strong extension higher in risk sentiment Friday saw the USD weaken, also as the May US PCE inflation data was seen as benign. The AUD trades soft ahead of Tuesday’s RBA decision.</div><div class="article-rte"><div class="rte--output"><p><span><strong>FX Trading focus:</strong></span><span><strong> </strong></span></p> <ul> <li><span><strong>USD direction remains in limbo after Thursday rally reversed on Friday.</strong></span></li> <li><span><strong>Australia&rsquo;s RBA: decision less interesting than commodities and other factors</strong></span></li> </ul> <p><span>Friday saw a leap higher in risk sentiment into the end-of-month and quarter, which may have driven some of the dynamic as the US dollar reversed most of the strength from Thursday that was generated off the back of a strong US jobless claims number. While the May PCE inflation number was read as benign by risk sentiment (the month-on-month coming in at 0.3% and year-on-year at 4.6%, a touch below the 4.7% expected), US 2-year yields finished relatively unchanged from levels prior to the data release and even extended higher to within several basis points of 5.00% today. We only saw two daily closes above 5.00% before the Silicon Valley Bank collapse touched off the banking turmoil and cratering of yields that has slowly rebuilt back to these levels from the May lows. </span></p> <p><span>The rise in the short end of yield curves comes as the long end remains relatively anchored (although tantalizing near important resistance ahead of 4.00% in the case of the US 10-year Treasury benchmark yield.). With the &ldquo;higher for longer&rdquo; Fed getting priced in, this pushes back the timing of the Fed&rsquo;s eventual rate cuts and has the yield curve achieving a new modern record inversion of -109 basis points for the 2-10. As long as the market persists with its view of eventual disinflation and no profit- or credit crunch concerns from an incoming recession, the USD will have a hard time finding notable support, though it&rsquo;s performance relative to broader risk sentiment is surprisingly resilient. A USD rally requires either fear and loathing or the Fed back on the warpath because inflation is reaccelerating. With the Fed thoroughly in reactive-, and not forward guidance, incoming data releases could trigger notable short-term volatility. Still, there is little chance to sustain a bigger move if US treasury yields aren&rsquo;t jarred more significantly out of ranges or the overall narrative shifts. </span></p> <p><span>This first week of July brings the usual busy data calendar from the US, with the ISM Manufacturing survey for June up today&nbsp;and expected to show a marginal improvement after a subdued 46.9 reading in May. The preliminary June US S&amp;P Global Manufacturing PMI just missed printing the worst level since the pandemic with an initial reading of 46.3. Later in the week, after a Tuesday US holiday, the US reports the June ISM Services survey on Thursday after May&rsquo;s worst showed . The S&amp;P Global Services PMI on the other hand registered its strongest reading in over a year in April at 55.0 and the initial June reading only dipped slightly to 54.1. Finally, Friday brings the June US labor market data, especially the Nonfarm Payrolls Change number after a strong surge in payrolls of +339k reported in May, while the Unemployment Rate is expected to dip back lower to 3.6% after an odd surge to 3.7% in May. Average Weekly Earnings/Hours are also in focus as these have both been on a declining trend since early 2022.</span></p> <p><strong><span>RBA preview<br /> </span></strong><span >The Reserve Bank of Australia is set to make its rate announcement late in Tuesday&rsquo;s Asian session, with the market and observers divided on the prospects for another hike after two consecutive surprise hikes from Governor Lowe and company. The market is pricing relatively low odds for the RBA to hike tonight, pricing higher, 50/50 odds of a move at the August meeting, while analysts surveyed by Bloomberg were evenly divided on the prospects for a hike tonight. The minutes from the prior meeting were somewhat dovish relative to prior meetings, and the AUD rally deflated rapidly, likely as key metals prices remain rangebound and the Chinese renminbi has suffered a long drawdown that coincides with the continued bleak outlook in China. Tonight, the RBA will have to surprise someone with the decision itself, but we are unlikely to see the bank driving notable forward expectations shifts. Those would require a notable change in the backdrop linked to commodities and China&rsquo;s outlook. The next important Australian inflation report is the quarterly one for Q2 that will be released on July 26.</span><span ><span data-ccp-props="{'201341983':0,'335559739':160,'335559740':259}"></span>A dovish hike seems more logical than another pause followed by a restarting of tightening in August, which is the market&rsquo;s favoured outcome, but the RBA has shown a willingness to keep the market guessing and the monthly frequency of the RBA meetings allows more flexibility. Either way &ndash; like most other central banks, the RBA is reactive to incoming data and won&rsquo;t guide beyond the next meeting.</span></p> <p><span><strong><span>Chart: AUDUSD<br /> </span></strong></span><span >The AUDUSD has backed out much of the prior impressive rally that was driven in part by the RBA&rsquo;s two consecutive hawkish surprises at the last two meetings. With the price action completely embedded back in the prior range, the resistance is now 0.6700-50, with the bigger downside resistance level below 0.6500 the next focus if the outlook for China remains downbeat. Note the triangulation that has been ongoing for the better part the last year.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/03_07_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The JPY remains weak as US yields trade near important levels (5.00% for the US 2-year and the 10-year teasing the range highs late last week), while the US dollar&rsquo;s relatively flat performance is impressive, given the complacent backdrop/strong risk sentiment. AUD faces a test on tonight&rsquo;s RBA meeting. But outside of CNH and JPY, trend readings are feeble and a bit stale, needing a refresh or new developments.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/03_07_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Two key NOK pairs make for compelling watching here - EURNOK and USDNOK and whether they complete what could be eventual head-and-shoulder patterns. A crude oil rally likely needed there. After Friday&rsquo;s back-off in the US dollar &ndash; several key USD charts are in limbo, including EURUSD and GBPUSD.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/july/03_07_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1400 &ndash; US Jun. ISM Manufacturing</span></li> <li><span>0430 &ndash; Australia RBA Cash Target Announcement</span></li> <li><span>US Holiday tomorrow</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 03 Jul 2023 09:25:00 Z2023-09-23T06:29:59Z{AF553013-BD3B-4E20-AF45-ECD824B1C220}https://www.home.saxo/en-hk/content/articles/forex/fx-update-sterling-on-the-defensive-us-yields-frozen-29062023John Hardyproduct-forexHighlighted articlesFX Update: Sterling on the defensive. US yields frozen.<div class="article-excerpt">Sterling weakened sharply yesterday on Bank of England jawboning. The US dollar put on a show of strength, some of which has backed out again today, with the US yield curve frozen in place.</div><div class="article-rte"><div class="rte--output"><p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Sterling sold off on Bank of England rhetoric yesterday</span></strong></span></li> <li><span><strong><span>USD tries to extend rally, but choppy as US treasuries offer no clues or coincident indications</span></strong></span></li> <li><span><strong><span>Eurozone and US inflation numbers in focus tomorrow.</span></strong></span></li> </ul> <p><span>Sterling suffered a chunky sell-off on a couple of comments from Bank of England speakers at the ECB forum in Sintra, Portugal yesterday. Even as he bemoaned the causes for the Bank of England under-estimating the inflation risks in its prior forecasts, Chief Economist Huw Pill noted that he was seeing signs of transmission of BoE policy into private rents. The comment suggests that as long as tightening is seen as having some effect, the Bank of England may soft-pedal its approach, particularly when Governor Bailey later chimed in that he expects headline inflation will fall back sharply by the end of this year. There were other comments on second round effects and Bailey questioned market assumptions that a peak would so soon lead to cutting. These sounded none to dovish, and yet UK rates corrected quite sharply at the front-end of the UK yield curve, taking sterling south as well. EURGBP rose above 0.8640 at one point and GBPUSD dropped well through the sub-1.2700 supports to trade closer to 1.2600 at one point before rebounding. </span></p> <p><span>The US dollar was also firm, broadly speaking, but this was not down to any input from data or US treasury yields, which remain remarkably frozen within tight ranges all along the curve. As we discussed in today&rsquo;s podcast and recently in this column (as of this writing, we have been unable to upload it due to a technical issue with our host &ndash; go to <a href="https://saxostrats.podbean.com/">https://saxostrats.podbean.com</a> to see if we finally succeeded), to inject some more volatility into this market we need to either see a strong tilt to the worse in the outlook that sparks volatility from a risk sentiment angle or enough ongoing strength in the data to spark a break higher in long term yields &ndash; something that would take the US 10-year yield benchmark, for example, north of 4.0% again.</span></p> <p><strong><span>Chart: EURUSD<br /> </span></strong><span >While Bank of England speakers at the ECB forum in Sintra, Portugal managed to move the UK rates needle, the ECB&rsquo;s Lagarde and Fed Chair Powell failed to do likewise for EU or US rates, clearly an indication that the two central banks there are in data watching mode. EURUSD has chopped around sufficiently to mislead both bears and bulls over the last couple of session, arguing for patience and further signals from a confluence of factors (new incoming data, something that sparks volatility in US long yields, etc. as noted above). Until then, the key levels are fairly well etched now, with 1.1000 on a daily close a minimum hurdle for favouring a possible renewal of the uptrend that has stalled since early May and a close below 1.0850 and perhaps even 1.0800 to point lower for a test of the 1.0635 pivot low. The next best chance for incoming data to dislodge EURUSD from this limbo area are the weekly US jobless claims up today and then the flash June Eurozone core inflation data tomorrow, with the US also reporting May PCE Inflation data.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/29_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span>The Riksbank met today and decided on the 25-bp hike that the vast majority of observers expected (some thought Riksbank might do like the BoE and Norges bank and re-accelerate their hiking regime.) In the forward guidance, the Riksbank said it would hike again &ldquo;at least one more time&rdquo; this year. It also guided for a faster pace of QT, as it is set to sell SEK 5 billion per month of Swedish government bonds from a pace of 3.5B/month previously. It claimed that the faster pace would help strengthen SEK. The inflation forecasts were kept almost unchanged at 2.4% for next year and 1.8% in 2025 even with some language in the statement fretting how high inflation got and frustration that the pace of its fall has proven slower than anticipated. EURSEK chopped back and forth in the wake of the announcement, briefly posting a new all-time high, but little changed on the day as of this writing.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The pace of the JPY&rsquo;s descent has slowed on sovereign yields generally going nowhere. The US dollar is trying to poke to the strong side, but is not generally trending higher just yet in a broad sense. The kiwi has suffered the strongest momentum change over the last couple of trading sessions, probably mostly on a reversal of the over-extended recent AUDNZD sell-off.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/29_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >USD pairs are not showing a consistent picture, as AUDUSD and NZDUSD weakness are more likely due to the gravitational pull of a weak CNH. Note that GBPUSD is getting closer to suffering a reversal. EURJPY features the most extreme trend reading of 9.1, quite remarkable given flat European sovereign yields of the last couple of weeks. Finally, watching out for a bullish reversal confirmation in AUDNZD in coming sessions and whether EURGBP upside develops further after testing resistance.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/29_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1200 &ndash; Germany Flash Jun. CPI </span></li> <li><span>1230 &ndash; US Weekly Initial Jobless Claims </span></li> <li><span>2330 &ndash; Japan Jun. Tokyo CPI </span></li> <li><span>2330 &ndash; Japan May Industrial Production </span></li> <li><span>0130 &ndash; China Jun. Manufacturing and Non-Manufacturing PMI</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 29 Jun 2023 11:25:00 Z2023-09-23T06:52:18Z{7A42579C-60E5-456A-9B7B-75754FE83302}https://www.home.saxo/en-hk/content/articles/forex/fx-update-what-is-needed-for-volatility-to-return-27062023John Hardyproduct-forexHighlighted articlesFX Update: What is needed for volatility to return?<div class="article-excerpt">Risk sentiment is weak if we look at headline indicators like the stock market, but fear levels still look complacent, probably important in helping the JPY to continue to sell-off to new lows for the cycle in places.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/high-flyers-get-big-haircut-but-fear-levels-very-low/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>JPY scrapes to new low as fear levels remain subdued</span></strong></span></li> <li><span><strong><span>US dollar awaits incoming data &ndash; what to watch for in today&rsquo;s Consumer Confidence survey</span></strong></span></li> <li><span><strong><span>Is sterling showing signs of vulnerability.</span></strong></span></li> </ul> <p><span>Despite a lack of significant sovereign bond market volatility, the JPY has scraped to new lows for the cycle again today, although new USDJPY highs just ahead of 144.00 failed to stick, while EURJPY managed to clear 157.00 for the first time since 2008. We can argue all we want that the move is looking a bit stretched, given that key long yields elsewhere are not trading at new cycle highs and the 10-year JGB &ldquo;cap&rdquo; of 0.50% isn&rsquo;t even under pressure in Japan, with 10-year JGB&rsquo;s currently yielding only 37 basis points.</span></p> <p><span>The past week has seen a solid downdraft in risk sentiment, as measured by global equities, at least. At the same time, &ldquo;fear gauges&rdquo; like the VIX suggest that equity traders are taking the mark-down very much in stride after the prior strong rally. In FX, implied volatilities have picked up ever so slightly, though the 1-month Deutsche Bank implied volatility measure sits near 7.0% today, the lowest since February of 2022, just before the Fed achieved lift-off with its hiking cycle. JPY volatility is a slightly different story, with USDJPY 3-month implied picking up from below 9% mid-month to just over 10% today. That 3-month tenor does capture the next two FOMC and BoJ meetings, it should be noted.</span></p> <p><span>Given that markets are complacent on recession risks and that the forward central bank expectations curve is for perhaps just one more Fed hike followed by a series of cuts starting sometime next year as inflation is expected to weaken significantly, it is hard for the market to drum up volatility. A reheating of volatility would likely require either a) for bad news to materialize quickly in the form of incoming data, and for it to play as sufficiently bad to actual merit a bad news reaction function or b) for a reheating of the economy to become more evident and lift commodity prices and forward inflation concerns. Today does see the June Consumer Confidence survey. On watch there is whether the Present Situation comes unglued from its very elevated and stable levels of the last 7 months above 145. That part of the survey is correlated with the strength of the labor market and would likely need to drop considerably to suggest we are entering into a recession window. The expectations component meanwhile, is at the low end of the range of the last 10 years, but has stabilized in recent months as well, still solidly above the panic last summer on the spike in gasoline prices.</span></p> <p><strong><span>Sterling showing signs of vulnerability?<br /> </span></strong><span >Sterling is looking a bit tired, particularly in light of the further advance in UK yields to new cycle highs (2-year Gilt posting 5.2% today, with BoE priced to peak above 6.00% this year). It&rsquo;s a bad look for a currency that can&rsquo;t find more support from a more hawkish central bank, likely because the UK inflation is seen as a structural issue that will hamper growth, tying the fiscal authorities&rsquo; hands behind their back if inflation is to be avoided. Fears of tight fiscal, in other words, risk offsetting the pricing of tighter monetary policy. </span><span >&nbsp;</span><span >A smaller economy is the only viable path to less inflation when the supply side is the limiting factor. The 2-year German Schatz-UK Gilt spread has plunged to new cycle lows in the last few days &ndash; currently at -209 basis points versus around -100 bps in late April. The flattening out of EURGBP despite the relative rise in BoE hike expectations suggests some sterling vulnerability. It&rsquo;s a bit of a wait for the next UK data of note, payrolls/claims/earnings data for June, don&rsquo;t arrive until the week after next.</span></p> <p><strong><span>Chart: GBPUSD<br /> </span></strong><span >GBPUSD has yet to show its hand after peaking just above 1.2800 and then rejecting a second attempt at that level over last week&rsquo;s Bank of England meeting, a move that was rejected. Technically, the first real sign of weakness would be a fall back through the old resistance area around 1.2650+, but bears need a fuller rejection of the latest rally wave to argue that at top is in, and that would require the pair to punch back down through perhaps the 61.8% retracement of that wave, which is just above 1.2500. Soft US data that encourages lower US yields and a fresh wave of strong risk appetite (or at minimum, no significant risk-off) are likely needed to engineer a bull-trend confirming rally and close back above 1.2800. on that note, watching today&rsquo;s US confidence and especially Friday&rsquo;s PCE inflation data, with the data calendar for the US picking up next week.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/27_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >China checked the decline in the yuan overnight, but the impact was rather limited, with AUD getting very little from the move after a nudge higher overnight. Australia&rsquo;s May CPI report is up tonight. Coming up just after this report goes live is the Canadian CPI, a test for the very strong CAD of late.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/27_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >The AUDUSD chart status looks pivotal here, not decisively negative just yet despite our trending indicator nudging into negative territory yesterday. AUD pairs face a test with the CPI release tonight. EURGBP trend status will be interesting to track in coming days, although most trends there in recent years have been of short duration.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/27_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)</strong><br /> <ul> <li><span>1230 &ndash; Canada May CPI </span></li> <li><span>1230 &ndash; US May Durable Goods Orders </span></li> <li><span>1300 &ndash; US Apr. S&amp;P CoreLogic Home Price Index </span></li> <li><span>1400 &ndash; US May New Home Sales </span></li> <li><span>1400 &ndash; US Jun. Consumer Confidence </span></li> <li><span>1400 &ndash; US Jun. Richmond Fed Manufacturing Index </span></li> <li><span>1700 &ndash; US Treasury auctions 5-year notes </span></li> <li>0130 &ndash; Australia May CPI</li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 27 Jun 2023 11:45:00 Z2023-09-23T06:48:46Z{6948A651-684D-4E7F-BDF6-5D823F25DEBB}https://www.home.saxo/en-hk/content/articles/forex/fx-update-euro-down-on-pmi-miss-usd-resurgent-23062023John Hardyproduct-forexHighlighted articlesFX Update: Euro down on PMI miss. USD resurgent.<div class="article-excerpt">The US dollar is resurgent risk sentiment soured overnight and this morning on weak Flash Eurozone PMIs. Norges Bank and Bank of England 50-bp hikes failed to support NOK and GBP, respectively.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/perilous-narrowness-in-us-equity-market-bonds-to-crowd-out-stocks/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Norges Bank and Bank of England larger than consensus 50-bp hikes do nothing for </span></strong></span></li> <li><span><strong><span>Weak Euro on preliminary June PMI today</span></strong></span></li> <li><span><strong><span>USD resurgent, AUDUSD on verge of full-blown reversal</span></strong></span></li> </ul> <p><span><strong><span>Norges Bank hikes 50, initial rally reverses<br /> </span></strong></span><span >The Norges Bank hiked 50 basis points, which only a large minority expected, triggering a knee-jerk rally in NOK, if one that entirely failed to sustain by the end of the day. This shows that rate moves are a marginal consideration for NOK at best. By later in the day yesterday, a steep sell-off in crude oil and European gas benchmarks weighed on the currency, even as short Norwegian rates stuck a move higher on the day. Weak risk sentiment in Asia overnight and ugly European PMI&rsquo;s this morning (more below) weighed further on NOK, even taking EURNOK to a local new high even as the euro came under intense pressure versus the US dollar. USDNOK rocketed back above 10.80 after touching 10.50 for a heart-beat yesterday and is at risk of entirely reversing the attempt to establish a down-trend after retreating from the high just shy of 11.30, posted at the end of May.</span></p> <p><strong><span>Bank of England hikes 50, GBP shrugs<br /> </span></strong><span >The Bank of England went with a larger hike than the consensus expected, taking the policy rate 0.50% higher to 5.00%. The market marked up the peak BoE rate to above 6.00% early next year, but Gilt yields hardly reacted beyond the 1-year time horizon, with the peak at the very front-end of the curve only marked several basis points higher. This kept EURGBP relatively sideways, with GBPUSD moves less about the BoE and more about the US dollar. Discussions of the incoming UK mortgage resets for 2-year debt from Q3 extending a year forward remind us of the painful incoming impact on household disposable income in the UK. Some 800,000 households face a mortgage reset on 2-year mortgage debt that will be on the order of 500 basis points and another 1.6 million will reset next year, according to a </span><a href="https://www.reuters.com/markets/rates-bonds/is-britain-edge-mortgage-market-meltdown-2023-06-22/" target="_self">Reuters article</a><span >. The burden falls heaviest, of course, on younger borrowers who have the highest loan to equity ratios. If widespread default develops as a risk, can only imagine that the government drums up a rescue plan before it allows widespread evictions, but that is getting ahead of ourselves. For now, this event just shows that the market has largely priced about as much as it can for BoE action at coming meetings and continues to fret the eventual fallout to the economy as seen in the ongoing inverting of the UK yield curve.</span></p> <p><strong><span>Chart: AUDUSD<br /> </span></strong><span >Weak narrative around China&rsquo;s outlook, a dovish set of RBA minutes after two hawkish surprises that had recently pumped up Australian rates and the recent setback in risk sentiment (particularly in Asia) had the AUDUSD on the defensive this week. The sell-off has taken the pair into critical levels, even below the 200-day moving average here intraday today. This is beginning to look like a full reversal of the rally wave from the early June lows, especially now that we find ourselves more than a figure below the original 0.6800 breakout area to the upside. The coming few sessions should tell us whether the pair can dig itself out of the hole or if we are headed for a full capitulation back to the sub-0.6500 lows of earlier this month. Without a brightening outlook in China-centered sentiment and possibly the CNH, the downside remains the side of least resistance.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/23_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Euro and EURUSD after weak Eurozone flash June PMIs this morning.<br /> </span></strong></span><span>Weak preliminary EU PMI&rsquo;s this morning shocked Eurozone rates lower, with the German 2-year Schatz yield off some 10 basis points as of this writing as the market brings forward ECB peak and reduces expectations for the number of hikes beyond the July meeting (less than 50 bps priced to peak ECB after today&rsquo;s figures). France&rsquo;s ugly miss on Services (48.0 vs. 52 expected and 52.5 in May) and Germany and Eurozone Manufacturing PMI dipping to new cycle lows of 41.0 and 43.6, respectively were the negative low-lights. The data sent EURUSD into a tailspin, but this local sell-off has not yet reversed the prior large rally wave. That would require a capitulation below perhaps 1.0780-1.0750, but the technical outlook in the bigger picture remains in limbo as we continue to coil in the range established early in the year, as the attempt up through 1.1000 in April-May was rebuffed. A significant move lower requires perhaps one side of the &ldquo;USD smile&rdquo; to kick into gear, whether weak risk sentiment on the one side or higher Fed/higher long US treasury yields on the other. The euro needs a stronger economy and for strong risk sentiment to return (and broad risk-sentiment strength, as in, not just AI-linked themes)</span></p> <p><span><strong><span>Next week<br /> </span></strong></span><span >In past cycles, next week&rsquo;s economic calendar might have been more highly anticipated, but given the tepid reception of larger-than-expected rate hikes this week and the market thoroughly ignoring Fed Chair Powell&rsquo;s two days of testimony this week, there is little anticipation of drama at next week&rsquo;s ECB Sintra conference (Tuesday and Wednesday), with speakers from many of the major global central banks. Other highlights include the German IFO Survey on Monday (Expectations rolled over slightly in May after several months of improvement), US June Consumer Confidence on Tuesday, Germany flash June CPI on Thursday, Eurozone flash June CPI on Friday, and finally the tardy May US PCE inflation data on Friday.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The JPY and CNH remain bottom of the pile, but precious metals are also very weak (anticipated longer term inflation drop flatters anticipated higher real yields in part). Also note the incredible turnaround in AUD in momentum terms over the last week, which has only neutralized the prior rally, taking the trend back to zero. The Canadian dollar looks too strong without resurgent oil prices/risk sentiment as BoE expectations doing too much of heavy lifting there.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/23_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Huge reversals in NOK pairs yesterday with follow through today, NOKSEK perhaps most spectacularly with the new highs yesterday harshly rejected, although EURNOK and USDNOK require a look as well. EURAUD has flipped, NZDUSD is trying to register a flip to a negative trend.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/23_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 23 Jun 2023 12:25:00 Z2023-09-22T23:08:09Z{C0C659C4-D305-418A-8591-C451C8715FFE}https://www.home.saxo/en-hk/content/articles/forex/fx-update-bank-of-england-in-the-hottest-of-seats-after-another-hot-core-uk-cpi-reading-21062023John Hardyproduct-forexHighlighted articlesFX Update: Bank of England in the hottest of seats after another hot core UK CPI reading.<div class="article-excerpt">UK reports another cycle high in core inflation, intensifying focus on the Bank of England meeting tomorrow. Today is the first of two days of Fed Chair Powell testimony, but is he set to bring anything new to the table?</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/speculative-pockets-shine-even-on-a-down-day/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Three central bank meetings tomorrow from Bank of England, Swiss National Bank and Norges Bank - all with the size of the rate hike in question</span></strong></span></li> <li><span><strong><span>Another hot core UK core CPI print today, and yet sterling off - market seems worried that BoE can't deliver what is expected.</span></strong></span></li> </ul> <p><span><strong>Thursday's CB decisions: a reacceleration in hike expectations?</strong><br /> The RBA minutes stating that the latest rate hike was "finely balanced" suggest that the RBA will be in pause mode again at the July meeting and have helped drive the recent AUD consolidation (next key is the 0.6700 area and just below) Elsewhere, there is plenty of fuel to drive an acceleration of rate hike expectations, even if today's reaction to the hot UK CPI data (weaker sterling and the inability to stick new highs in UK short yields even if yields did rise from yesterday's lows) does suggest that the bar is quite high for a hawkish surprise from tomorrow's Bank of England decision. Norges Bank and Swiss National Bank tomorrow could also round out whether the recent shift toward more hawkish expectations is confirmed in both the decision and guidance at the three G10 central bank meetings tomorrow. some more thoughts below on each of the three meetings.<br /> <br /> Otherwise, perhaps the most interesting thing to note is the very strong level of risk sentiment across global markets as we note in today's Saxo Market Call podcast. That generally supports a weaker USD in reflexive fashion, but we need a "refresher" wave of USD weakness to suggest the prior one hinted at a more profound sell-off is underway. The first of two days of Fed Chair Powell testimony are set for today before a House Panel, but Chair Powell may not have much on his mind besides his "data dependent" message as per the last FOMC meeting's press conference.<br /> <br /> <strong>Bank of England</strong><br /> Bank of England: the last two shocking core inflation and very positive revisions to alarming April labor market data have all come since the prior Bank of England meeting and have taken forward Bank of England hike expectations skyward, with a full 150 basis points priced in through early next year, which would mean a Bank of England would have to take the policy rate close to 6.0%. Governor Bailey has shown a reluctance at every turn to turn fully hawkish, but this data is so stark, requiring a strong response, that we have to expect that the BoE does what it can to claw back as much credibility as it can, or else. Finger pointing and a small hike could prove devastating for sterling. In short: the market has already priced 90 basis points through the next three meeting, so to clear the expectations bar, the BoE may need to hike 50 points and hawkish guidance to support sterling again. Today's sterling weakness shows doubt at the margin, perhaps justifiable, that the BoE will struggle to deliver.<br /> <br /> <strong>Chart: EURGBP</strong><br /> EURGBP rallying sharply today despite hot new UK inflation suggests that the Bank of England has a lot to deliver to support the bullish sterling case. There is plenty of room for this pair to consolidate higher without reversing the down-trend, but 0.8675 possible begins to stress it badly. The market will be very reactive to tomorrow's Bank of England meeting.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/21_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Swiss National Bank<br /> </span></strong>Remember that the SNB meets only quarterly. The market is divided on whether the bank will hike 25- or 50 basis points tomorrow, with the latter considered possible as a way to buy insurance for the long wait until the September meeting, while a smaller hike seems justified by inflation falling back just enough over the last two months to take it to 1.9% at the core for May. The SNB is generally a follower and not a leader in hiking, but we could see everything from a smaller hike with&nbsp; a bias to tighten further if necessary to a larger hike with a bias to pause.&nbsp;<strong><span><br /> <br /> Norges Bank<br /> </span></strong>Short Norwegian rates are at the highs for the cycle ahead of the Norges Bank meeting tomorrow, with a slightly majority anticipating an acceleration of the pace of hiking to 50 basis points, taking the rate to 3.75% if they do. The last two months of accelerating core or "underlying" CPI prints have to be a concern. Guidance on further plans also critical. Constructive on Norges Bank's intention to deliver and support NOK here&nbsp; - with EURNOK and USDNOK both at more interesting levels for testing the bear case after the recent large sell-off before this retracement suggested a top may be in place for these two pairs.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)<br /> <br /> </strong> <ul> <li><span>1230 &ndash; Czech National Bank Rate Announcement </span></li> <li><span>1230 &ndash; Canada Apr. Retail Sales </span></li> <li><span>1400 &ndash; US Fed Chair Powell testifies before House Panel </span></li> <li><span>1700 &ndash; US Treasury auctions 20-year bonds </span></li> <li><span>1730 &ndash; Bank of Canada meeting minutes </span></li> <li><span>2130 &ndash; Brazil Selic Rate Announcement </span></li> <li><span>0130 &ndash; Bank of Japan&rsquo;s Noguchi to speak</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 21 Jun 2023 10:45:00 Z2023-09-22T23:11:15Z{E7AE3ACA-A4CB-4DEE-84DD-0DD502DE9BD5}https://www.home.saxo/en-hk/content/articles/forex/fx-update-ecb-hawkishness-gets-traction-boj-remains-unmoved-16062023John Hardyproduct-forexHighlighted articlesFX Update: ECB hawkishness gets traction. BoJ remains unmoved.<div class="article-excerpt">The ECB waxed hawkish in expressing concerns on second round effects and projecting higher inflation for the coming years. The euro has galloped higher. Next week offers heavy event risk calendar.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/hawkish-ecb-gets-traction-especially-as-boj-remains-unmoved/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>ECB delivers hawkish stance, with strong upgrade to inflation/wage projections. Front end European yields jump higher</span></strong></span></li> <li><span><strong><span>Strong Euro response enhanced by weak US weekly jobless claims data point, unmoved BoJ overnight</span></strong></span></li> <li><span><strong><span>Yen in death spiral. Next steps are next Friday&rsquo;s BoJ meeting and July 28 BoJ meeting </span></strong></span></li> <li><span><strong><span>Busy week ahead</span></strong></span></li> </ul> <p><span><strong><span>ECB hawkishness boosts euro, with other factors in play<br /> </span></strong></span><span >The ECB hiked 25 basis points as universally expected, but guided far more hawkish than expected in the press conference on the risks of second round effects and with the set of new staff economic projections. In the latter, the sharp adjustment higher from the March forecasts of core inflation (to for this year and next and even a nudge higher in the 2025 forecast suggests an ECB that is less confident that it will bring inflation down as quickly as previously hoped. Most importantly, and unlike the reaction to the &ldquo;hawkish hold&rdquo; from the Fed, the big move higher in front-end European rates held, driving a significant rally in the euro. That rally was given a boost by a weak US weekly initial jobless claims number that pushed long US treasury yields lower (that was my focus for USD direction yesterday, as the 10-year benchmark yield was perched near the cycle highs &ndash; only weak sentiment and/or strong surge in US long end yields seem to have a chance of supporting the greenback.) Looking at front-end yield spreads, however, the EURUSD rally is getting a bit rich here, with the extra boost likely coming from very strong risk sentiment. We will need to see the yield spread widening further to drive a EURUSD rally sustainably above 1.1000.</span></p> <p><span><strong><span>BoJ fails to move once again &ndash; July 28 meeting offering more potential?<br /> </span></strong></span><span >The Bank of Japan entirely failed to deliver anything new or guide for a tweak or even conditionality at the next meeting on July 28. The recent hawkish shift elsewhere accentuated the negative reaction in the JPY, but as I note below in the discussion of GBPJPY, with long end yields in the main sovereign yield curves still anchored within recent ranges, this latest extension in JPY weakness is already looking excessive. We have a very interesting test for these JPY crosses over the week ahead if long yields don&rsquo;t break higher and on the flurry of central banks set to meet next week (more below). Another test for the JPY will be Friday&rsquo;s May Japan CPI data. Owning some upside optionality on the JPY through to the other side of the July 28 Bank of Japan meeting is an interesting proposition in the event that a) the Bank of Japan actually finally moves in the direction of tightening then, even with just a tweak or b) that we continue to see a failure of all of this CB hawkishness to feed into the long end of the yield curve and the global outlook continues to weaken.</span></p> <p><span><strong><span>Chart: GBPJPY<br /> </span></strong></span><span >GBPJPY and other JPY crosses are soaring on the general shift toward more tightening and hawkish guidance from several central banks of late, while the Bank of Japan remains unmoved. As long as the long end of yields curves globally remain largely anchored, the move is arguably getting a bit stretched. With the Bank of England already priced to bring more additional tightening than any other G10 central bank, interesting to see next week if the Bank of England can deliver on guidance as the ECB did this week. Whenever this rally in JPY crosses ends, it will likely do so in spectacular fashion on a capitulation from the Bank of Japan or if yields come under pressure from the growth outlook. Downside optionality is perhaps worth owning through to the other side of the July 28 Bank of Japan meeting. Volatility looks rather inexpensive as few expect drama &ndash; but worth watching options pricing as that event risk nears.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/16_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Busy week ahead<br /> </span></strong></span><span>Next week is a busy one on the economic calendar &ndash; a few notes:</span></p> <p><span><strong><span>Monday</span></strong></span><span>: US markets closed to mark Juneteenth.</span></p> <p><span><strong><span>Wednesday</span></strong></span><span>: UK May CPI is up ahead of the Thursday BoE meeting after the April numbers saw core inflation rocketing to a new cycle high and after the strong wage growth and labor market data last week that spiked UK yields higher. Also on Wednesday, we have Fed Chair Powell with his first of two days of semi-annual testimony before a House panel. We have just heard from him in the FOMC presser and the Fed seems very data dependent &ndash; doubtful that we get new signals here.</span></p> <p><span><strong><span>Thursday</span></strong></span><span>: Another central bank bonanza, with Norges Bank, the Swiss National Bank and Bank of England all meeting and all expected to hike a quarter point, with guidance important for all, but most anticipation certainly for the BoE, where so much is priced into the forward curve: almost another further 100 basis points beyond the hike next week for the Bank of England in particular. &nbsp;The Turkish central bank will also meet and is expected to normalize its policy rate to something close to actual prevailing rates in the country, so the official policy rate will be bumped from 8.50% to 20% or higher &ndash; with an interesting test for the TRY after a step-wise like revaluation post-election. Mexico will also announce its policy rate (no change expected after the long string of hikes and a mere 0.25% hike last time as MXN is increasingly priced for perfection). USDMXN has been a popular carry trade with its fat 11.25% policy rate, note the very steep backups that periodically hit the exchange rate.</span></p> <p><span><strong><span>Friday</span></strong></span><span>: Japan&rsquo;s National CPI for May, which may challenge the BoJ&rsquo;s forecast of easing inflationary pressures this year. Also up are the flash Eurozone PMIs for June, which have generally presented a picture of weak manufacturing sector and quite strong Services sector of late and with a slight dip expected for June. </span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >Note the acceleration in the downside momentum for the JPY in the last two and five days, while the CNH has stabilized (and even rallied against the USD yesterday). AUD leads the charge higher on the combination of hopes for more Chinese stimulus after the rate cuts there this week, on the hawkish shift from the RBA, and on key commodity prices on the rise, including copper. The USD has tilted lower and in determined fashion until proven otherwise.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/16_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Some wild readings in GBPCNH and AUDCNH &ndash; hard to believe in much extension there. Next week we&rsquo;ll will be on watch for the latest trends&rsquo; ongoing status, including the lurch lower in the greenback.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/16_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)<br /> <br /> </strong> <ul> <li><span>1200 &ndash; Poland May Core CPI </span></li> <li><span>1400 &ndash; US Jun. Preliminary University of Michigan Sentiment/Inflation expectations</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 16 Jun 2023 11:15:00 Z2023-09-23T06:53:31Z{A63E6C2C-1A7A-45A1-854F-353D96984658}https://www.home.saxo/en-hk/content/articles/forex/fx-update-hawkish-pause-from-fomc-pressure-mounts-on-boj-15062023John Hardyproduct-forexHighlighted articlesFX Update: Hawkish pause from FOMC. Pressure mounts on BoJ.<div class="article-excerpt">The FOMC, ECB and Bank of Japan meetings are incoming, starting with tonight’s Fed decision and guidance. These event risks could drive plenty of volatility in the major currencies through the end of the week and beyond.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/fomc-s-hawkish-hold-pressurizes-boj-adobe-faces-big-test/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>FOMC delivers a hawkish hold, with a knee-jerk USD rally not sustaining as Powell emphasized data dependency in the press conference. A flurry of data in the US session ahead.</span></strong></span></li> <li><span><strong><span>ECB anticipation is low as in-line to slightly dovish guidance are more likely than a hawkish surprise, and staff economic projections are in focus.</span></strong></span></li> </ul> <p><span><strong><span>FOMC: a hawkish hold delivers little for the USD.<br /> </span></strong></span><span >The FOMC delivered no hike as most expected and a very slightly altered statement. The hawkish surprise was in the economic- and Fed funds projections in the accompanying materials. The dot plots for the Fed funds rate were adjusted 50 bps higher to 5.6% for the end of this year and 0.3% higher for next year (to 4.6%) and even for 2025 (also +0.3% to 3.4%, suggesting the Fed wants to maintain a higher-for-longer message. Supporting that adjustment were upgrades to the PCE core inflation projection for this year to 3.9% from 3.6% in March, although the 2024 and 2025 inflation projections were kept unchanged. Unemployment rate projections were revised sharply lower for this year to 4.1% and growth projections adjusted higher. Fed Chair Powell softened the hawkishness quickly in the press conference by indicating strong data-dependency (again highlighting that the data is always going to tell us what the Fed will do.) As well, he did a poor job of explaining why the Fed should pause here only to resume hiking again later this year &ndash; but data dependency does most of the explaining (at the margin, possible as well that the Fed wants to see how the market absorbs the heavy Treasury issuance incoming after the lifting of the debt ceiling.)</span></p> <p><span>We do have to remember that the March economic and policy projections were in the week just after the sudden advent of the banking turmoil on March 8-9, which forced the Fed to wax a bit more cautious at the time on the possible impact of the impending credit crunch. Looking at the December SOFR future, the rate expectations from the Fed have now almost come full circle, with the market allowing the Fed&rsquo;s new dot plot to price in about half a rate hike of further tightening for that meeting relative to before yesterday&rsquo;s announcement, and taking the rate to about that much above the current Fed Funds rate.</span></p> <p><span>The most interesting development to watch from here is whether the US yield curve stops deepening its inversion as it did yesterday (2-10 spread to -91 basis points) and if stronger than expected incoming US data, if that&rsquo;s what we get, begins to pressure longer US yields higher. The 10-year is perched close to the cycle highs near 3.86%. The only path to USD strength may lie via longer yields lifting more aggressively and impacting risk sentiment.</span></p> <p><span><strong><span>ECB: watching staff economic projections<br /> </span></strong></span><span >The European Central Bank will almost certainly hike 25 bps today to take the deposit rate to 3.50%, the second hike in a row at smaller increments after the multiple 50 bp hikes. As discussed in my update yesterday, the range of outcomes from the ECB are either in-line with expectations for marginal further tightening to tilting slightly dovish and not wanting to provide forward guidance. The bar looks high for a hawkish surprise. Since the last meeting headline Eurozone CPI has cooled to 6.1% from 7.0%, and the &ldquo;super-core&rdquo; measure fell to 5.3% from 5.6%. Furthermore, the ECB&rsquo;s Consumer Expectations survey for April saw the 1yr ahead inflation expectation </span><span >declines</span><span > to 4.1% from 5.0% and 3yr view fall to 2.5% from 2.9%.The growth trajectory is also worrisome with Germany and Eurozone in a technical recession, and if the ECB decides to (like Bank of Canada) remove all forward guidance, it could </span><span >weigh on the euro, depending on what risk sentiment and long US treasury yields are doing. (Most negative for euro: concern on growth weighing on guidance, risk sentiment weakens as US long end comes unmoored and heads to 4.00%). Staff projections for economic growth and inflation will also affect how the market reacts to the ECB&rsquo;s guidance and incoming data.</span></p> <p paraid="786516359" paraeid="{453e7511-4455-4d4b-b036-d1af09547452}{171}"><span data-contrast="auto"><strong><span>Urgency rising for Bank of Japan to signal willingness to make policy shift.<br /> </span></strong></span><span >The bottom is dropping out of the Japanese yen ahead of Friday&rsquo;s Bank </span><span >of</span><span > Japan meeting, in part as </span><span >a number of</span><span > central banks have adjusted </span><span >their</span><span > policy expectations higher recently and yield</span><span >s at the long end of the US yield curve are </span><span >perche</span><span >d near the highs since the March US banking turmoil pushed them lower. At his first meeting as Bank of Japan Governor back in April, Kazuo Ueda </span><span >stated</span><span > that the bank would take up to eighteen months to conduct a policy review (</span><span >likely wanting</span><span > to </span><span >inc</span><span >orporate one more year of wage talks next March to see if inflation will prove sustained</span><span > before moving with any </span><span >notabl</span><span >e tightening</span><span >)</span><span >. </span><span >But with the most recent collapse in the Japanese yen, the market could yet force the BoJ&rsquo;s hand and require that the bank make at least a few tweaks to </span><span >indicate</span><span > it </span><span >won&rsquo;t</span><span > allow the JPY to absorb intensifying press</span><span >ure. The market is pricing the BoJ to deliver </span><span >perhaps a</span><span > hike of the policy rate</span><span > from &ndash;0.10% to 0.0% through its December meeting.</span></p> <p><span><strong><span>Chart: EURJPY<br /> </span></strong></span><span >EURJPY has lurched higher post-FOMC as the JPY was lower across the board, pressurizing the Bank of Japan . Not since the very strong EUR days leading into the global financial crisis has the pair traded at this elevated a level. For any hope of a turnaround, either the economic outlook will need to deteriorate globally and punch yields back lower or the Bank of Japan is going to have to signal a willingness to shift policy notably before the end of its policy review that could theoretically last well into late 2024.Support now stiches to the 151.00-151.50 area with no ceiling for now if long global yields come unmoored and the Bank of Japan continues to sit on its hands on Friday.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/15_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >Status on currencies should be clear on the Friday close after the ECB and BoJ have weighed in and we have a look at today&rsquo;s US data. The AUD got further support on strong jobs data and key commodities are supporting as well (copper above recent resistance). Gold looks very weak &ndash; watching yields there for risk of further pressure.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/15_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Will look at status on other side of event risks through tomorrow&rsquo;s BoJ. USD pairs in many places on their back-foot again very quickly here after the FOMC even after the USD was weaker ahead of the meeting and FOMC supposedly delivered hawkishness. USDJPY the key exception, of course.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/15_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)<br /> <br /> </strong> <ul> <li><span>1215 &ndash; ECB Rate Decision </span></li> <li><span>1215 &ndash; Canada May Housing Starts </span></li> <li><span>1230 &ndash; US May Retail Sales </span></li> <li><span>1230 &ndash; US Weekly Initial Jobless Claims </span></li> <li><span>1230 &ndash; US Jun. Empire Manufacturing </span></li> <li><span>1230 &ndash; US Jun. Philly Fed survey </span></li> <li><span>1245 &ndash; ECB President Lagarde Press Conference </span></li> <li><span>1315 &ndash; US May Industrial Production</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 15 Jun 2023 09:30:00 Z2023-09-23T06:39:15Z{7592008B-FA2F-4E3B-B432-FB1961862FF4}https://www.home.saxo/en-hk/content/articles/forex/fx-update-scenarios-for-the-fomc-ecb-and-boj-14062023John Hardyproduct-forexHighlighted articlesFX Update: Scenarios for the FOMC, ECB and BoJ.<div class="article-excerpt">The FOMC, ECB and Bank of Japan meetings are incoming, starting with tonight’s Fed decision and guidance. These event risks could drive plenty of volatility in the major currencies through the end of the week and beyond.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/market-continues-melt-up-into-today-s-fomc/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Scenarios for what each of the major central banks meetings will deliver and how the market may reach, starting with </span></strong></span></li> <li><span><strong><span>UK labor market data comes in strong, with sharply improved revisions of key April numbers.</span></strong></span></li> </ul> <p><span><strong><span>FOMC meeting &ndash; a likely pause, but there is a big &ldquo;but&rdquo;<br /> </span></strong></span><span >The FOMC is likely to deliver a pause today, but if it does want to hike once more, it will more likely be today than in July, whereas the market is pricing low odds of a hike today and slightly better than 50/50 odds of a hike in July. The three most likely scenarios are arguably no hikes at either meeting, a, hike today but none in July, or hikes both today and in July. It makes little sense from a credibility angle to pause for one meeting only &ndash; if the Fed is going to pause and then resume hiking, it would likely pause at least for a couple of meetings before resuming further down the line because, for example, inflation remains sticky rather than continuing its fall.</span></p> <p><span>One thing to observe of late, and especially yesterday, is that the market is rapidly unwinding its pricing of eventual Fed rate cuts for the end of this year and particularly for next year. The December meeting is now on par with the current policy rate, while the June 2024 SOFR interest rate future has unwound a chunky 100 basis points of easing expectations over the last month. Part of this could be a side effect of recent strong risk sentiment, but in that case, the longer end of the yield curve will be in danger of breaking higher and eventually pushing back against that same sentiment melt-up. I am less curious about the Fed&rsquo;s decision to hike or pause today and more curious about how the market prices the Fed next year and whether the long end US treasury yields are set for a rise through 4.00%</span></p> <p><span><strong><span>In short, some scenarios for the Fed:<br /> </span></strong></span><span ><strong>Highest probability</strong></span><span >: Fed does not hike, but emphasizes its intent to keep rates high for longer than previously with an upgrade of the 2024 Fed funds projections in the &ldquo;dot plot&rdquo; (most dots clustered in the 4-4.5% range) and perhaps with some marginal upgrades in the economic forecast for this year, particularly the unemployment rate. <strong>The market reaction function?</strong> If this feeds the recent melt-up in sentiment and doesn&rsquo;t see US treasury yields rising aggressively, the US dollar may weaken against pro-cyclical currencies especially, but also broadly. If US treasury yields rise sharply on the back side of the meeting, presumably because the Fed manages to get across a more hawkish message on rates staying high for much longer, it could spook risk sentiment and send the USD higher, especially versus EUR and JPY, but also broadly. In general, the 10-year yield bears watching as a key risk factor for global market</span></p> <p><span><strong><span>Somewhat lower probability</span></strong></span><span>: The Fed hikes but signals something resembling the above in its guidance (a likely pause but wants to reserve ability to tighten again at some point down the road). No material reaction difference beyond a possible very large knee-jerk USD rally.</span></p> <p><span><strong><span>Lowest probability</span></strong></span><span>: Fed hikes and makes it clear it is leaning for another move in July. Far more USD bullish unless the market reads this as the Fed determined to trigger a recession and long US treasury yields fall.</span></p> <p><span><strong><span>Wild card</span></strong></span><span>: Fed Chair Powell mentions the stock market/financial conditions in the press conference Q&amp;A and concerns that it could drive instability.</span></p> <p><span><strong><span>ECB can ease up on weak economy, downside inflation misses.<br /> </span></strong></span><span >The ECB is likely to provide less drama than the Fed as weak growth data and the latest Eurozone inflation data undershooting (core for May estimated at 5.3% versus 5.5% expected and 5.6% in April, with the May headline number down to 6.1 vs 6.3% estimated, 7.0% in April, and a peak of 10.7% (!) last year) help to simplify its task. The ECB can deliver the expected 25 basis point hike and downshift the forward guidance slightly, indicating a bias for a further hike but no urgency, given softening inflation. Also note that the ECB will allow almost half a trillion of TLTRO bank loans to roll off later this month, with Italian and Greek banks in the spotlight on that issue. No reason to expect any shift in the hawkish direction, rather more likely to be in-line with expectations.</span></p> <p><span><strong><span>ECB scenario</span></strong></span><span>: There is little anticipation of this meeting driving volatility, as measured by EURUSD implied volatility in 1-month options, for example, dropping over the last week to below 6.5% and the lowest since February. Assumption is that the ECB delivers the expected 25 basis point hike, and alludes to further tightening bias with no urgency. This keeps the euro neutral to possibly weaker against the broader market, depending especially on whether the FOMC manages to drive USD strength or weakness. <strong>Market reaction function</strong>: the &ldquo;surprise side&rdquo; is a more dovish than expected outcome, with the extent of that reaction depending on whether the BoJ or more likely the FOMC manage to surprise in the opposite direction. Risk off and higher US treasury yields on the Fed managing a hawkish surprise would likely see EURUSD pushing for the 200-day moving average below 1.0550, while a Fed that fails to impress and an in-line ECB could allow EURUSD to dribble higher toward 1.1000 (but Euro not notably strong elsewhere).</span></p> <p><span><strong><span>Bank of Japan: most ability to surprise, but the least propensity?<br /> </span></strong></span><span >At Kazuo Ueda&rsquo;s first meeting as Bank of Japan Governor back in late April, the bank announced the intent to conduct a policy review of up to 18 months before making decisions. If the bank remains good on its word, it is only likely to tweak policy <strong><em>before</em></strong> April of next year or later (after the latest yearly wage talks in March) if the yen is coming under significant pressure due to pressure from global yields continuing to rise, for example on an improvement in the economic growth outlook, and/or on a fresh spike in energy prices. Market measures of anticipation coming into this meeting (options skew, options implied volatility, etc.) suggest declining anticipation of anything happening on Friday. The irony there is that the surprise factor is that much bigger if the BoJ delivers a surprise tweak or guidance for a tweak soon. The BoJ delivering absolutely nothing could keep the "pain trade" of further steady weakening of the JPY alive.</span><span ></span></p> <p><span><strong><span>BoJ scenario</span></strong></span><span>: market anticipation of something material developing at this meeting is virtually nil, so any actual tweak or flagging of a tweak at coming meetings would be a significant shock initially, with the JPY&rsquo;s ability to continue strengthening dependent on what yields are doing globally, as discussed in the chart below. If the BoJ delivers nothing and US longer-end treasury yields head higher, regardless of what the FOMC delivers, USDJPY could head to new local highs here &ndash; to 142+ initially. If US yields head lower (not sure how we get there, given wild risk appetite and coming treasury issuance) or the BoJ surprises with a policy tweak, USDJPY could be in for a downside correction - needing to take out 137.00-137.50 to suggest a significant reversal.</span></p> <p><span><strong><span>Chart: USDJPY vs. US 10-year Treasury yield<br /> </span></strong></span><span >The peak in USDJPY above 150.00 last fall coincided with the peak in US 10-year treasury yields, with a significant intervention around that time frame after an earlier one in September when USDJPY reached 145 for the first time since the 1990&rsquo;s. The turn in US rates lower was more important than BoJ intervention. Since then, the subsequent peak in early March may have been more muted due to anticipation that the Bank of Japan under new leadership would tweak policy further after the December move to expand the cap on the 10-year JGB yield to 0.50% from 0.25%. USDJPY could arguable go back to test 145+ and even 150 again if US 10-year treasury yields shift higher and challenge the 4.00% level unless the Bank of Japan makes a credible threat to begin tightening.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/14_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >CNH remains the weakest currency as the PBOC&rsquo;s moves this week have the market looking for a rate cut at the meeting tonight in Asia&rsquo;s Thursday session. AUD sits at the top of the class on hopes for incoming Chinese stimulus and on some of the key commodities rallying (copper technically pivotal here after a rally above an important level yesterday that has so far held). Interesting NOK surge here as well on the comeback in oil markets.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/14_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >NOK is on the comeback trail, as visible in some hefty positive readings and EURNOK breaking below the 11.50 area. Most keen to watch USD pair status through the end of the week post-Fed: worth noting that EURUSD right at tipping point.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/14_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)<br /> <br /> </strong> <ul> <li><span>1800 &ndash; US FOMC Announcement/Rate Decision </span></li> <li><span>1830 &ndash; US Fed Chair Powell Press Conference </span></li> <li><span>2245 &ndash; New Zealand Q1 GDP </span></li> <li><span>0120 &ndash; China PBOC Rate Announcement </span></li> <li><span>0130 &ndash; Australia May Employment Data </span></li> <li><span>0200 &ndash; China May Industrial Production </span></li> <li><span>0200 &ndash; China May Retail Sales</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 14 Jun 2023 12:45:00 Z2023-09-23T01:51:36Z{3C277DCA-586C-4009-A6CF-F4DCF9B11A9E}https://www.home.saxo/en-hk/content/articles/forex/fx-update-us-cpi-to-set-the-tone-for-fomc-and-usd-13062023John Hardyproduct-forexHighlighted articlesFX Update: US CPI to set the tone for FOMC and USD.<div class="article-excerpt">Today’s May US CPI release will likely set the tone for the US dollar as it impacts the odds of the Fed pausing or hiking at tomorrow’s FOMC meeting. Elsewhere, China bring surprise cut, UK delivers strong labor market data.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/will-the-fed-s-third-mandate-be-in-play-tomorrow/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>USD on its back foot as risk sentiment continues to soar &ndash; US CPI later today the obvious focus, but will the Fed&rsquo;s &ldquo;third mandate&rdquo; (the S&amp;P 500) play any role in tomorrow&rsquo;s decision?</span></strong></span></li> <li><span><strong><span>UK labor market data comes in strong, with sharply improved revisions of key April numbers.</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>USD</span></strong></span><span>: Two-way risks in the coming two days. On a soft CPI print and the Fed delivering a pause, we likely have room for USD to test significantly weaker &ndash; for example, EURUSD toward top of range. A hot core CPI print and Fed rate hike could be felt most strongly in USDJPY, especially if BoJ holds off from even hinting at anything on Friday.</span></li> <li><span><strong><span>NOK</span></strong></span><span>: EURNOK backing up on weak Q1 Norway GDP report. After recent reversal, bears in EURNOK in charge as long as the price action stays south of 12.00</span></li> <li><span><strong><span>GBP: </span></strong></span><span>Very choppy &ndash; traded to local highs yesterday on rhetoric from BoE&rsquo;s Catherine Mann before significant consolidation lower &ndash; back higher today on strong labor market data.</span></li> <li><span><strong><span>JPY</span></strong></span><span>: lurking in the background is the Friday BoJ meeting &ndash; even guidance for an eventual tweak to the tightening side could drive significant volatility/JPY upside, with the scale of that volatility dependent on whether Fed pauses or hikes.</span></li> </ul> <p><span><strong><span>Hot UK labor market data this morning pumps UK yields to new cycle highs.<br /> </span></strong></span><span >Some very positive revisions to ugly April UK labor market data have changed the plot here again for the Bank of England. The Payrolled Employees figure was inline at +23k for May, but the strong revisions to April data, from original &ndash;136k up to +7k wiped away concerns, even if the moving average is still trending in the wrong direction. More good news was in the May Jobless Claims numbers, which fell &ndash;13.6k, while April figures there were revised down to +23k from what was originally a two-year high of +47k. The April Employment Change figure (3-months/YoY) was +250k, a new high since May of last year, while the April Unemployment rate dropped to 3.8% from 3.9% and versus 4.0% expected. Average Hourly Earnings for April were far higher than expected, at +7.2% ex Bonus YoY vs. 6.9% expected and 6.8% in March. This mix of data jolted the UK 2-year yields another 18 basis points higher to new highs above the chaotic period last fall during the Kwarteng-Truss mini-budget debacle. GBPUSD revived on this, but much of that was a weaker USD, and it is interesting to note the weak transmission of higher UK yields into sterling as measured by EURGBP today, which is flat to slightly lower today after rallying sharply yesterday from new lows (on BoE Catherine Mann voicing concerns on sticky inflation).</span></p> <p><span><strong><span>Today&rsquo;s US CPI sets up the FOMC tomorrow<br /> </span></strong></span><span >Today&rsquo;s US CPI looks set to drive significant volatility as risk sentiment is in near melt-up mode coming into today&rsquo;s release (Warning: we have significant US equity market intraday volatility risk on so-called zero-days-to-expiry options that can risk driving wild swings in the intraday action in both directions. Extremely short data options have driven new patterns in intraday volatility and some considerable volatility events outright: most impressively on the December 13 release of the surprisingly soft CPI November CPI, which saw the market rally some 3% and then deflate back to unchanged all within a few hours). Was yesterday&rsquo;s odd combination of a strong rise in the market and a large rise in the VIX a sign that market participants are loading up on short-dated options. I only bring this up because asset markets move in synch on volatility inducing events, so it may be necessary to keep a cool head in the event of a surprise in the data. Given strong sentiment and the market&rsquo;s assessment that odds are low for a hike tomorrow, the more impactful &ldquo;surprise side&rdquo; could be in hotter-than-expected core inflation &ndash; anything above the 0.4% MoM expected. And even if we get an in-line to soft print, we have to be wary that some of that is already in the price.</span></p> <p><span>As well, if we see a softer than expected core US CPI print today and the market continues to melt-up, could the action raise Fed concerns on the financial stability front, the so-called &ldquo;third mandate&rdquo; for Fed policy? I wouldn&rsquo;t care to quantify that risk, but a wild market rally after the Fed has carried out its largest rate hike cycle in decades must sit poorly with the Fed here on the weakness of its policy transmission.</span></p> <p><span><strong><span>Chart: EURUSD<br /> </span></strong></span><span >EURUSD faces an important test in coming days on the US CPI release today and then the FOMC tomorrow and ECB meeting Thursday. The latter is surrounded with little anticipation on the recent weak European activity data. The pair will most likely be driven by USD direction, therefore, more than EUR direction. A weak US CPI print today and a Fed move to pause could set us back on the path to 1.1000 and higher, while any hot core CPI release today and a Fed decision to move tomorrow rather than waiting for July could have us testing the recent lows below 1.0700 again. The volatility may not stop if Friday sees any hawkish surprise from the Bank of Japan, which could punch the USD lower broadly if the Fed has paused ahead of this meeting, and perhaps even if it hasn&rsquo;t. Bank of Japan surprises will have the most impact this week.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/13_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >AUD and CNH heading in opposite directions with the most energy at the moment. The USD view is neutral here, awaiting CPI/FOMC.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/13_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >AUDCNH has reached a remarkable reading close to 10.00, the most stretched of all market trends at the moment.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/13_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><strong>Upcoming Economic Calendar Highlights (all times GMT)<br /> <br /> </strong> <ul> <li><span>1230 &ndash; US May CPI </span></li> <li><span>1700 &ndash; US Treasury to auction 30-year T-bonds</span></li> </ul></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 13 Jun 2023 10:45:00 Z2023-09-23T06:49:56Z{7743EDE8-0EDD-461F-89CB-669C0A0F9481}https://www.home.saxo/en-hk/content/articles/forex/fx-update-big-week-ahead-for-fx-as-all-g3-central-banks-meet-09062023John Hardyproduct-forexHighlighted articlesFX Update: Big week ahead for FX as all G3 central banks meet.<div class="article-excerpt">The big G3 central banks meet next week, with the Fed up Wednesday, ECB Thursday and Bank of Japan on Friday. The Bank of Japan has the most potential to move global markets, but is the time ripe for a policy tweak?</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/a-tesla-0dte-circus-today-huge-week-ahead-for-global-markets/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Norway&rsquo;s hot May CPI numbers shock NOK higher</span></strong></span></li> <li><span><strong><span>All G3 central banks meeting next week over three consecutive days, with Bank of Japan offering the most surprise potential as little is priced</span></strong></span></li> <li><span><strong><span>UK data also in focus next Tuesday after April payrolls and claims data were so poor.</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>NOK</span></strong></span><span>: Big rally today suggests EURNOK trend is turning, allowing stance of selling on rallies for potential back toward 11.15 or even lower eventually. NOKSEK looks a buy on dips, awaiting next week&rsquo;s Swedish CPI on Wednesday.</span></li> <li><span><strong><span>USD</span></strong></span><span>: FOMC on Wednesday next week &ndash; Fed may yet hike if May CPI next Tuesday is in-line or higher at the core. </span></li> <li><span><strong><span>EUR: </span></strong></span><span>least anticipation of drama from the ECB this week, as a 25 basis point hike is seen as a no brainer, but what is guidance after a miserable run of Eurozone economic data of late?</span></li> <li><span><strong><span>JPY</span></strong></span><span>: the BoJ meeting has by far the most potential to jolt markets if Governor Ueda and company decide to tweak policy, ironically with the surprise potential a function of the market not expecting anything new.</span></li> </ul> <p><span><strong><span>Norway CPI helping to cement EURNOK reversal.<br /> </span></strong></span><span >Norway&rsquo;s May CPI numbers this morning were far hotter than expected, at +0.5% MoM and 6.7% YoY for the </span><span >headlin</span><span >e numbers versus +0.3%/6.3% expected, respectively. The core numbers </span><span >were the more important ones and are seen as likely to trigger the most concern from the </span><span >Norges</span><span > bank, with core inflation rising 0.7% MoM vs. 0.4% expected and 6.7% YoY, the latter a new cycle high. One contributing </span><span >factor </span><span >has to</span><span > be the weak NOK, which has dropped over 10% this year alone against the euro. EURNOK dropped sharply on the news as the market upped bets on more hikes to come from Norges Bank, with talk now that a 50-basis point hike could be in play at the next meeting on June 22. The bank would also do well to stop the FX purchases/NOK sales intended to offset oil and gas tax revenue, maintaining a surprisingly high level of purchases this month. As noted in the chart below, EURNOK looks to have turned the corner after an incredibly persistent uptrend since last summer.</span></p> <p><span><strong><span>Chart: EURNOK<br /> </span></strong></span><span >EURNOK has rolled over more significantly in erasing most of the prior rally wave for the first time this year as the May CPI print today out of Norway came in far hotter than expected, sparking bets for a new acceleration in the Norges Bank&rsquo;s tightening regime. Hard to believe that a mere 38.2% of the very persistent uptrend since the lows last August near 9.61(!) to the 12.10 top would take the exchange rate all the way back to 11.15.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/09_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>FOMC: market underestimating likelihood of a hike? Tuesday CPI will weigh.<br /> </span></strong></span><span >Yesterday&rsquo;s hot jobless claims number of 261k (the first above 250k since November of 2021, assuming it is not revised below that level) moderated FOMC rate hike bets for next Wednesday&rsquo;s FOMC meeting. The probability today is seen around 25-30% for a 25-bp hike. Next Tuesday&rsquo;s May CPI figure is a far more important arbiter on whether the Fed hikes again than the weekly claims number. The last four consecutive Core YoY CPI numbers have printed at either 5.5% or 5.6%, slowing the prior decelerating trend, but with a cycle low of 5.3% expected for May. The headline is expected to moderate all the way to 4.1% vs. 4.9% in April as the most favourable YoY comparisons roll into view through June (June of last year saw the worst acceleration in gasoline prices, for example). If the core inflation number surprises on the high side for either the month-on-month or year-on-year readings, the Fed is far more likely to hike than to stand pat. Remember that the March FOMC economic projections are for the unemployment to rise to 4.5% and for the core PCE to have dropped to 3.3%. The April PCE was at 4.7%, essentially unchanged since the December print of 4.6%. Even with in-line CPI, I suspect the Fed hikes, but the more important factor could be the message in the newest projections we get next week, especially the inferred message from the combined &ldquo;dot plot&rdquo; forecasts of Fed policy combined with the PCE and other forecasts for this year and next. The USD likely rallies if the FOMC meeting upsets risk sentiment, whatever the reason.</span></p> <p><span><strong><span>ECB &ndash; no significant surprise side?<br /> </span></strong></span><span >The ECB meeting next Thursday offers perhaps the least potential for drama, as the market almost universally expects that President Lagarde and company will hike 25 basis points and speak sternly on the need to keep up the inflation fight, while at the same time having to admit that the Eurozone economy is performing poorly. The official Q1 GDP for both Germany and the Eurozone were slightly negative and . A miss on the downside for the preliminary May estimate for Eurozone CPI also makes it easier for the ECB to simply deliver what the market is expecting and provide little fresh guidance. Citi&rsquo;s measure of Eurozone economic surprises has reached a very low level at -90. Hard to see why the ECB needs to add any drama to its message next Thursday.</span></p> <p><span><strong><span>Bank of Japan &ndash; the most potential to jolt the market.<br /> </span></strong></span><span >After Governor Ueda declared that the Bank of Japan would take up to eighteen months to conduct a policy review (beyond the other side of the next wage negotiation rounds next March), expectations for even modest policy tweaks is low. Still, given those low expectations and the trillions of Japanese investor savings that are always sloshing around global markets, any surprise tweak could deliver an outsized response. Recall that the December tweak of the 10-year JGB yield band to +/- 50 basis points from 25 basis points triggered a one-off avalanche in JPY crosses (USDJPY moved almost 700 pips in a single day=. The pressure is arguably on the BoJ to move on policy after the RBA and Bank of Canada have restarted policy tightening at recent meetings and Norges Bank is now eyed possibly hiking 50 basis points. If the Fed hikes next week, this ups the pressure even more. Again, odds may be theoretically low, but higher than the market expects, and the reaction function to any BoJ move here could prove far more intense than anything the ECB or even the FOMC are likely to deliver next week.</span></p> <p><span><strong><span>UK labor market data on watch next Tuesday<br /> </span></strong></span><span >An important test for sterling also lies ahead next week. While Citi&rsquo;s economic surprise index is a surprisingly positive +70 for the UK, one of the important economic data points that raised eyebrows last month was the labor market report, one that suggested the number of payrolled employees dropped out of bed in April with little warning with a drop of -136k, while the UK Jobless Claims in April ticked up to a post pandemic-disruption high of 47k. If we get another set of weak labor market numbers for May, it would likely temper the potential for the Bank of England to guide hawkish at the June 22 meeting. Presently, the 2Y2Y yield spread between the UK and the US (the difference between the market&rsquo;s pricing of the 2-year rate, two years into the future) is near multi-year highs at over 70 basis points and at the top of the historical range (matching the spread during the Kwarteng-Truss mini-budget panic). That looks very stretched as the UK is priced to have a 2-year yield at this date in 2025 of 4.14% while the US is priced to have a 2-year yield of 3.43 at that time.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The US dollar performance has gone flat, awaiting catalysts in the form of next week&rsquo;s FOMC meeting, which could yet bring a hike even as odds of one have dropped to 25%. But the Bank of Japan has the most potential to jolt market volatility next week. Note the huge NOK comeback in momentum terms in recent days. CHF also firmer after SNB&rsquo;s Jordan warned on inflation yesterday.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/09_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Extreme underperformance of SEK crosses faces a possible test next Wednesday on the Swedish CPI release. Some of the recent SEK weakness may be on negative Eurozone economic surprises. Note that EURNOK looks set to flip to a negative trend today, with GBPUSD probably needing next Tuesday&rsquo;s US CPI and UK labor market data for a confirmation of direction.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/09_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 09 Jun 2023 12:15:00 Z2023-09-23T00:19:45Z{B77D6968-D949-4197-AFD0-BEA4343AC61A}https://www.home.saxo/en-hk/content/articles/forex/fx-update-boc-joins-rba-in-renewing-tightening-regime-08062023John Hardyproduct-forexHighlighted articlesFX Update: BoC joins RBA in renewing tightening regime.<div class="article-excerpt">CAD strength is the theme of the day on Bank of Canada hawkish hike, but can forward expectations for the Bank continue to extend higher than those for the Fed?</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/strange-brew-big-megacap-sell-off-stark-divergences-and-lower-vix/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>CAD reaction shows much was priced into FX, even as Canadian rates jumped aggressively</span></strong></span></li> <li><span><strong><span>Choppy USD action suggest opportunities will be difficult to trade until next Tuesday&rsquo;s US CPI and the Wednesday FOMC meeting are out of the way.</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>CAD</span></strong></span><span>: the modest reaction to the Bank of Canada hawkish surprise in USDCAD suggests the market was looking for hawkish outcome (FX reaction far more muted than in rates). CAD strength on the relative repricing of the forward rates curve may be peaking here &ndash; will need new factors for CAD strength to extend (improving global outlook, energy prices, etc.).</span></li> <li><span><strong><span>AUD</span></strong></span><span>: the AUDUSD pair still in limbo as the attempt above 0.6680-0.6700 resistance was repulsed yesterday even as AUD strength still felt elsewhere (AUDNZD has tested most of the way to the 1.1088 resistance). Ditto above comments for CAD on relative repricing of RBA forward curve.</span></li> <li><span><strong><span>USD: </span></strong></span><span>choppy market here with slight bias for long positioning, but risk/reward difficult ahead of an important week next week. Jobless claims weak, but this can be USD neutral if risk sentiment wobbles broadly.</span></li> <li><span><strong><span>JPY</span></strong></span><span>: perhaps even more critical week ahead for the JPY as the more hawkish RBA and BoC have the yen on the defensive, while longer US treasury yields have also jumped higher again. Both FOMC and Bank of Japan up next week.</span></li> </ul> <p><span><strong><span>Bank of Canada: surprise consensus with hike plus hawkish guidance.</span></strong></span></p> <p><span>Especially in terms of the forward rate expectations, the Bank of Canada delivered a surprise yesterday in its decision to hike 25 basis points and deliver a hawkish statement on further hikes to come. It was the first BoC rate hike since January. Governor Macklem had made the point recently that his concern level is rising on the bank&rsquo;s ability to take inflation back to the 2% target, with the last percentage point below 3% the hard part of the journey. The statement noted stickier than expected core inflation and a rise in housing prices and &ldquo;other interest rate sensitive goods&rdquo;.</span></p> <p><span>Particularly in relative terms to the Fed, the forward policy curve expectations for the Bank of Canada now after this meeting look about as hawkish as possible through the end of this year. We even got a small extension today on release of the US weekly jobless claims (261k and a new cycle high if it holds post-revisions). The Fed is priced for a likely further 25 basis points of hiking in June or July followed by a removal of that hike and a bit more by the end of the year, while the Bank of Canada is priced to hike another 30+ basis points through December. The two-year US-CA yield spread has fallen to the lowest since a year ago to about -35 basis points, with the year-forward Canadian STIR future suggests a policy rate some 20 basis points lower than the current one, while the year-forward US SOFR future is priced for more than 100 basis point slower Fed rates. Hard to see a significant extension wider in this spread. If the US is in recession and the Fed is cutting, the BoC won&rsquo;t be far behind.</span></p> <p><span><strong><span>Chart: USDCAD<br /> </span></strong></span><span >USDCAD fell further yesterday, but the drop was modest relative to the strong 20 basis point surge in Canadian two-year rates on the back of the decision to hike yesterday and guidance for more policy tightening to come. Given our base case that it will prove difficult for the forward expectations curve for the BoC to continue pricing in more relative tightening than the Fed from here, it may prove difficult for USDCAD to work down through the next layers of support, which start at the pivot lows in recent months near 1.3300 and extend to the low of the year around 1.3261 and then the lows of late last year at 1.3222.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/08_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >While AUD and CAD are stand outs on strong side, these currencies&rsquo; strength may be peaking soon, at least as a function of the shift in the policy outlook. Elsewhere, big week ahead for the US (CPI and FOMC), sterling on labor market data next Tuesday, and JPY on any moves in especially US yields next week plus the Bank of Japan meeting next Friday.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/08_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Some wild readings in AUD and especially CAD pairs on this mini-theme lately of renewing the rate hike cycle from the RBA and the Bank of Canada &ndash; looking at you CADSEK and you AUDSEK and AUDNZD.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/08_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 08 Jun 2023 13:15:00 Z2023-09-23T06:46:11Z{F8E8BECB-328D-44E9-A630-59ECFDA28FD1}https://www.home.saxo/en-hk/content/articles/forex/fx-update-rba-surprises-hawkish-again-extending-aud-gains-06062023John Hardyproduct-forexHighlighted articlesFX Update: RBA surprises hawkish again, extending AUD gains.<div class="article-excerpt">The AUD jumped on another surprise RBA hike, but may be reaching the peak of its potential for now, barring more significant rallies in commodities and risk sentiment.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/market-gives-apple-s-vision-pro-a-thumbs-down/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>AUD rallies on second consecutive surprise hike from RBA</span></strong></span></li> <li><span><strong><span>The waiting game on USD as liquidity/Treasury issuance test lies ahead.</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>AUD</span></strong></span><span>: RBA surprise hike inspires AUD jump &ndash; huge resistance level in AUDUSD tested today at 0.6680+. The full bullish reversal is not in play yet until this level is broken (and USD elsewhere quite firm today). AUDNZD continued higher, but looking very overbought &ndash; next key resistance into 1.1088 pivot high from February (and high since last October.)</span></li> <li><span><strong><span>USD: </span></strong></span><span>the sell-off attempt late last week led nowhere and was quickly countered. Looking for ways to express a long view again with potential fuel to come from liquidity pinch as US treasury rebuilds its reserves after the lifting of the debt ceiling. Climax reversal of GBPUSD suggests new downside test ahead as long as pair remains below 1.2450 area. The recent pivot low there is 1.2308. EURUSD has more room to range lows into low 1.0500&rsquo;s.</span></li> <li><span><strong><span>SEK and NOK</span></strong></span><span>: sell-off in EURSEK and EURNOK quickly gathered up, back to neutral on SEK and NOK.</span></li> </ul> <p><span><strong><span>AUD: yet another surprise hike from the RBA<br /> </span></strong></span><span >For the second consecutive meeting, the RBA surprised expectations with another 25 basis point rate hike, taking the cash rate target to 4.1%. The RBA&rsquo;s statement indicated that while it felt inflation was past its peak, that it would require some time for it to return to the target range and that the move was aimed at increasing confidence that inflation would fall. The statement also noted wage pressures rising (As it began increasing rates last year, much of the RBA focus was on weak wage growth as a reason to take a slow approach to hiking rates), particularly in the public sector. Recent house price rises were also noted and the Bank guided for possible further policy tightening going forward: &ldquo;some further tightening of monetary policy may be required&rdquo;. The move sent AUD higher still, but without more support from the commodities market and risk sentiment, the AUD may be nearing its ceiling for now. A weak CNH is also a potential drag as dark clouds continue to dog the Chinese recovery story.</span></p> <p><span><strong><span>Chart: AUDUSD<br /> </span></strong></span><span >We noted on Friday that the AUDUSD threatened a reversal on a move back above the 0.6600 area, which was the important area on the way down to the recent lows, but also noted that a full take-out of the 0.6700 area would be important for &ldquo;a more emphatic reversal&rdquo;. The RBA&rsquo;s surprise hike has the pair poking at this important area, which includes the 0.618 retracement of the recent sell-off in the 0.6680 area and then the 200-day moving average a bit higher. A weak close today would put the pair back in limbo &ndash; stay tuned, and worth noting that Australian 2-year yields have already erased about half of the reaction to the surprise hike overnight. </span><span ></span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/06_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>USD: broader picture mixed as liquidity on rising Treasury issuance on watch.</span></strong></span></p> <p><span>Plenty of confusion for USD traders since it became quite clear that the US debt ceiling would be raised late last week. The brief USD sell-off from mid-last week reversed Friday and the USD firmed a bit more in places today. The data has generally provided a confusing backdrop. Friday&rsquo;s strong May Nonfarm Payrolls change number of almost +300k plus a strong positive revision of the prior two months&rsquo; data was the only positive among many negatives. Among those were pronounced weakness in the household survey that is used to calculated the unemployment rate, which jumped a full 0.3% to reach 3.7% last month without any pick-up in the participation rate. Except for the explosion of the unemployment rate on the pandemic outbreak in early 2020, it would be the sharpest rise in the unemployment rate since 2010 if it holds without a revision. Also disappointing were the slightly weaker than expected average hourly earnings growth, importantly despite another 0.1 drop in the average weekly hours to 34.3. That level matches the range lows for weekly hours since 2011 (not including early 2020 spike). The downtrend in weekly hours suggests weakening labor utilization/rising spare capacity. Then yesterday&rsquo;s May US ISM Services at 50.3 suggests that the dominant services sector of the US economy is at stall speed at best.</span></p> <p><span>And yet, the incoming US data won&rsquo;t be much of a focus this week, with the next test the CPI release next Tuesday. Meanwhile, a record pace of treasury issuance as the US Treasury is set to rebuild its reserves will be an important factor to monitor as it will pressure USD liquidity and possibly risk sentiment. </span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >USD strength remains, but needs refreshment to indicate the greenback remains in a bull trend. Elsewhere, the AUD and CAD are riding tall but the air could be getting thin for both without further boosts in commodity prices and perhaps risk sentiment. The CNH weakness remains quite pronounced and persistent.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/06_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >AUDUSD is making a bid for a bullish reversal today in the trend, but note the caveats in the chart above. GBPUSD is tilting back lower, really needing to break the low 1.2300&rsquo;s area to suggest a proper downside break.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/06_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1400 &ndash; Canada May Ivey PMI </span></li> <li><span>2320 &ndash; Australia RBA&rsquo;s Lowe to speak </span></li> <li><span>0130 &ndash; Australia Q1 GDP</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 06 Jun 2023 11:45:00 Z2023-09-23T06:50:25Z{F9C8607D-1853-4E71-BBEF-B0CF2D4569B7}https://www.home.saxo/en-hk/content/articles/forex/fx-update-for-the-usd-the-debt-ceiling-lift-is-so-far-a-sell-the-fact-moment-02062023John Hardyproduct-forexHighlighted articlesFX Update: For the USD, the debt ceiling lift is so far a sell-the-fact moment.<div class="article-excerpt">The USD weakened sharply as risk sentiment brightened and market participants show no signs of fearing the surge of US treasury issuance in coming weeks. Commodity dollars rallied aggressively ahead of US jobs data today.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/oops-that-wasn-t-supposed-to-happen-post-debt-ceiling/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Too early to draw conclusions, but an important development that USD weakens as US treasury yields dip despite known heavy US treasury issuance incoming now that debt ceiling issue is clearing.</span></strong></span></li> <li><span><strong><span>Commodity dollars, NOK rally hard in pro-cyclical signal.</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>USD: </span></strong></span><span>sharp consolidation suggests potential for a key reversal that puts focus back on downside depending on today&rsquo;s close post-employment data. See below on USDJPY. EURUSD requires more work for a reversal. AUDUSD is interesting here, suggesting a bullish reversal if we close today near highs thus far (well above 0.6600). USDCAD: watching 133.00 area but so many range levels to punch through.</span></li> <li><span><strong><span>JPY</span></strong></span><span>: with such strong risk on, the focus is a bit less on JPY, but lower yields are supporting. Huge focus on USDJPY into sub-138.00 area and the 200-day moving average currently near 137.30. If price action slices through this zone, could suggest more structural sell-off ahead. Stay tuned.</span></li> <li><span><strong><span>SEK and NOK</span></strong></span><span>: shift in sentiment offering some strong support for the Scandies. Preferring NOK over SEK for now as EURSEK will require a profound sell-off (at least below 11.40) to begin cementing reversal. Bearish stance on EURNOK targeting sub-11.60 as long as remains below 11.90-95. </span></li> </ul> <p><span><strong><span>USD: sell-off as debt ceiling impasse clears a &ldquo;sell the fact&rdquo; moment?<br /> </span></strong></span><span >The USD weakening sharply in the wake of the debt ceiling bill clearing both houses of the US Congress is playing as a sell-the-fact moment for the US dollar, and a buy-the-fact moment for risk sentiment and US treasuries. That&rsquo;s despite the concerns, also voiced here, that the US treasuries titanic issuance needs in coming weeks could. With money market funds growing apace as savers rotate out of zero- or very low yielding deposits, however, perhaps the liquidity concerns in the near term are overblown. Longer term, the US still risks a mounting credit crunch as banks contend with an unprecedented deposit flight and higher cost of funding to compete with alternative savings vehicles, but for now, if US treasury yields stabilize and continue lower, the USD could be set for a significant sell-off, provided data misses don&rsquo;t prove too dire. It will take a bit more time to ensure that a reversal signal is in place here, starting with how the greenback ends today post-jobs data, but the energy in the move yesterday and the change of tone in commodities and the surge in commodity currencies discussed below suggests something new is afoot here and that in the short term, we and others may have been overplaying the short term concerns for liquidity on the post-debt ceiling Treasury General Account (TGA) rebuilding. Of course, all of the above is much ado about nothing if we reverse sharply again later today on, for example, strong US jobs numbers, but &ldquo;the feel&rdquo; is different this time around so far.</span></p> <p><span>The USD is sharply weaker ahead of today&rsquo;s US May jobs report, with about +200k in the nonfarm payrolls change expected. Watch for revisions as much as today&rsquo;s data point. The goldilocks for risk sentiment is perhaps very slightly soft numbers or inline numbers with no surprises in the earnings, while USDJPY may get more attention/downside from surprisingly soft numbers. The most recent initial jobless claims readings suggest little risk of large downside surprises.</span></p> <p><span><strong><span>Chart: AUDUSD<br /> </span></strong></span><span >Commodity currencies got a strong boost yesterday on the change in tone on risk sentiment and as cyclical commodities rallied sharply almost across the board. Copper is up sharply over the last couple of session and crude oil is likewise so ahead of this weekend&rsquo;s OPEC+ meeting. AUDUSD has responded with a sharp rally off the lows and this powerful reversal back up through the 0.6600 level looks like a rejection of the last leg lower, though we&rsquo;ll need to see the pair stick the move into the close today after the US jobs data, arguably a full pull back above the 200-day moving average and 0.6700 area would be a more emphatic signal of a major reversal than we have as of this snapshot. An RBA meeting next Tuesday likely carries little risk for the Aussie as long as risk sentiment and commodity price action is supportive. AUD is strong in the crosses as well, with AUDNZD posting new highs and soon threatening the 200-day moving average.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/02_06_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >An enormous momentum shift in the US dollar here over the last two days that looks decisive without a sharp reversal of the move into today&rsquo;s close. Elsewhere, the Aussie has reversed recent weakness, while SEK and NOK are trying to do likewise.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/02_06_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Watching USD pairs over the coming week for possible new USD downtrends to develop. Strong risk sentiment has us looking at EURCHF as well for a possible rally/new uptrend, although price action is a bit too quiet there so far.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/june/02_06_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US May Change in Nonfarm Payrolls&nbsp; </span></li> <li><span>1230 &ndash; US May Average Hourly Earnings </span></li> <li><span>1230 &ndash; US May Unemployment Rate </span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 02 Jun 2023 11:10:00 Z2023-09-23T10:11:05Z{624A952A-68F7-42F6-9BBB-F6DE0DE9AC0A}https://www.home.saxo/en-hk/content/articles/forex/fx-update-greenback-shrugs-off-debt-ceiling-deal-30052023John Hardyproduct-forexHighlighted articlesFX Update: Greenback shrugs off debt ceiling deal<div class="article-excerpt">The US dollar hasn’t shown much reactivity to the deal reached to lift the debt ceiling, but the full picture will take time to develop. Elsewhere, the Scandies eye new cycle lows versus the euro.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/notable-divergence-in-equity-market-internals/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>USD not getting anything from debt ceiling deal announcement, but it&rsquo;s a medium term factor regardless.</span></strong></span></li> <li><span><strong><span>USDJPY ready to consolidate as long US yields ease back lower. Recession status in focus in US data confidence, yield curve signals</span></strong></span></li> <li><span><strong><span>Fresh SEK and NOK focus after more weakness. Key Norges Bank FX purchase announcement up tomorrow.</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>USD: </span></strong></span><span>May need to consolidate gains here &ndash; momentum very weak, especially given debt ceiling deal announcement, but on watch for renewed strength further out if consolidation proves half-hearted.</span></li> <li><span><strong><span>GBPUSD: </span></strong></span><span>has lost downside momentum, standing aside.</span></li> <li><span><strong><span>JPY</span></strong></span><span>: room for a rally as long yields have backed off. USDJPY could eye 138.00 and EURJPY perhaps 148.50, but bigger reversal likely needs recession concern rising and bigger punch lower in yields.</span></li> <li><span><strong><span>SEK</span></strong></span><span>: verbal intervention from Riksbank failed to hold for even a single session. New low for the krona to be tested until a more robust official response? </span></li> </ul> <p><span><strong><span>USD: debt ceiling deal not serving as a catalyst.<br /> </span></strong></span><span >The deal-in-principle between Republican House speaker McCarthy and the Biden White House will hopefully punt the debt ceiling issue to the other side of the November 2024 US election. We will still need to see the deal fully passed by both houses and by President Biden in coming days, but the market looks set to put this issue behind it for now. There hasn&rsquo;t been much in the way of a reaction function, with US yields easing back a bit lower at the long end of the yield curve. (Are we supposed to believe because it a) makes investors feel safer to buy longer term US debt or is it b) a function of the market pricing the Fed to prove less dovish now that it won&rsquo;t have to worry about the impact of a prolonged stand-off on government spending and thus likely more successful in bringing about a recession that is probably needed to slow inflation more significantly?)</span></p> <p><span>Before drawing too many conclusions, it&rsquo;s important to note that the impact will have to be measured in coming weeks and months rather than days, as the implications play out in the shape of the US treasury rebuilding its reserves to the tune of some half a trillion USD or more in net issuance. That&rsquo;s a lot of liquidity absorption at a time when the Fed is also doing QT. Back at the end of 2021, the Treasury&rsquo;s reserves were similarly depleted in mid-December and were rebuilt to over 700 billion by early February, but banks were awash in reserves at that time and Fed QT had not yet started. Nonetheless, that period in early 2022 saw the first real break in the equity market since the pandemic lows. There seems little fear afoot in risk sentiment this time around, but as we discussed in this morning&rsquo;s Saxo Market Call podcast, market internals are not pretty, with the gains in the big indices in recent days almost entirely due to enormous impact on select stocks linked to AI. As well, it is worth once again noting that the US Treasury&rsquo;s drawdown of its reserves has more than offset overall Fed QT this year.</span></p> <p><span><strong><span>US yield curve inversion, consumer confidence in focus as recession indicators<br /> </span></strong></span><span >The US yield curve has been inverting again as the market prices the Fed to stay higher for longer and possibly even hike once more in June or July (almost a full 25 basis-point rate hike priced through the July FOMC meeting and the December FOMC pricing has bobbed back to 5.00. The yield curve has inverted back toward -80 basis points for the 2-10 slope, needing weak data now to stop . A brief reminder that yield curve inversions are a profound indicator for recession risks, if a very imprecise one. Back before the financial crisis, the yield curve inverted as early as early 2006, almost two full years before the economy entered a recession in late 2007. This time around, the yield curve begain its sustained inversion in July of last year. We noted in today&rsquo;s podcast that the last two cycles of 2000-1 and 2007-08 have seen the yield curve steepening proceed other indicators like the Present Situation component of the US Consumer Confidence beginning to deteriorate relative to Expectations (which are already in the gutter). Today sees the May release of that US confidence survey.</span></p> <p><span><strong><span>Chart: USDJPY<br /> </span></strong></span><span >Watching USDJPY here after the run above 140.00 that has coincided with the recovery in US treasury yields, in part on the anticipation of the debt ceiling lifting. US yields peaked Friday and have come back lower, offering the JPY some support. Today, USDJPY has been choppy on Japan&rsquo;s finance minister Kanda out with verbal intervention (oddly producing a brief USDJPY rally before it settled back lower). USDJPY will stay very sensitive to developments in US yields, but if the long end of the US treasury yield curve stays capped, pressure may be on the pair to fall back toward the 200-day moving average or at least to the 138.00 area that was broken on the way up.</span></p> &nbsp; <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/30_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>More scandie woes as EURNOK and EURSEK eye highs again<br /> </span></strong></span><span >The remarkable Eurozone natural gas situation (discussed in this morning&rsquo;s podcast) that could see natural gas prices dropping almost to zero or even below ahead of the heating season has EURNOK testing the highs for the cycle as the Norges Bank FX purchases were excessive relative to incoming tax revenue from the oil and gas producers over the last month. </span><strong ><em>Tomorrow sees the Norges Bank announcing its intended daily purchases/sales for June</em></strong><span >. Given developments in gas and NOK, these should be set to zero from their May pace of NOK 1.4B/day! Watch for NOK reactivity around this data release tomorrow at 0800 GMT.</span></p> <p><span>Elsewhere, the Swedish krona got almost nothing out of the Riksbank&rsquo;s first real verbal attempt to check the market last week with verbal intervention on the currency last week. Credit to the economy continues to crater, with yesterday&rsquo;s April Household Lending survey dropping to 1.9% year-on-year, the lowest since the mid-1990&rsquo;s. Somehow Sweden reported a slightly firmer GDP than expected in Q1, but the credit and other recent numbers suggest the economy is likely at stall speed or worse, as Sweden remains supremely vulnerable to the impact from rising yields on private disposable income. EURSEK just popped to a new high since the financial crisis above 11.62 as I am writing this.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >USD playing a &ldquo;sell the fact&rdquo; pattern on the debt ceiling deal here the first day after the long weekend? Hard to know, but it will take some doing to reverse the USD uptrend. Elsewhere, note the extreme woes in the Scandies and the sterling finally pulling stronger after a very misleading reaction to the inflation data last week that prompted our concern.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/30_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >USD pairs are all in bull mode &ndash; with GBPUSD and USDCAD with the least positive signals. Elsewhere, watching JPY crosses broadly for whether the yen can put up a fight here.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/30_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1300 &ndash; US Mar. S&amp;P CoreLogic Home Prices </span></li> <li><span>1400 &ndash; US May Consumer Confidence </span></li> <li><span>1430 &ndash; US May Dallas Fed Manufacturing Activity </span></li> <li><span>2300 &ndash; Australia RBA Governor Lowe to testify </span></li> <li><span>2350 &ndash; Japan Apr. Industrial Production </span></li> <li><span>0100 &ndash; New Zealand May ANZ Business Confidence </span></li> <li><span>0130 &ndash; China May Manufacturing and Non-manufacturing PMI </span></li> <li><span>0130 &ndash; Australia Apr. CPI</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 30 May 2023 10:45:00 Z2023-09-23T06:55:04Z{A674543E-BEB5-4F39-92B6-B86BB0177180}https://www.home.saxo/en-hk/content/articles/forex/fx-update-how-much-of-a-debt-ceiling-lift-already-in-the-usd-price-26052023John Hardyproduct-forexHighlighted articlesFX Update: How much of a debt ceiling lift already in the USD price?<div class="article-excerpt">he market may be front-running an eventual debt ceiling deal, and USD liquidity issues will likely prove more important than incoming inflation data for USD direction. Also: SEK jolted higher from very low levels by rhetorical Riksbank intervention today.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/us-treasury-yields-turning-the-screws-also-this-is-a-listeners-edition/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>The US dollar has rallied together with treasury yields backing up &ndash; is this a partial front-running of the a debt ceiling agreement?</span></strong></span></li> <li><span><strong><span>Swedish krona &ndash; countdown to a more robust official response after latest leg lower reversed today on rhetorical Riksbank intervention.</span></strong></span></li> </ul> <p><span><strong><span>Trading notes/bias shifts</span></strong></span></p> <ul> <li><span ><strong>USD: </strong></span><span >Key support violated in EURUSD and elsewhere, but this did not lead to capitulation. Volatility danger around today&rsquo;s data releases (PCE and UMich Sentiment) and on debt ceiling deal announcement. Tactically neutral, but eventually looking for a debt ceiling deal to play as USD-supportive.</span></li> <li><span><strong><span>NZD:</span></strong></span><span> NZDUSD shorts may look to trim positioning for reloading as long as rallies fall short of 0.6150. Similarly, AUDNZD longs may revert to buy on dips as long as price action remains north of 1.0650.</span></li> <li><span><strong><span>GBPUSD: </span></strong></span><span>A sluggish affair lower, shorts may trim positions here, will want price action to stay south of 1.2425-50 to maintain tactical downside view.</span></li> <li><span><strong><span>JPY</span></strong></span><span>: back-up in global yields has meant another false starts for JPY bulls trying to spot a comeback, but still favour 3-6 months options for expressing downside view in GBPJPY and EURJPY</span></li> <li><span><strong><span>SEK</span></strong></span><span>: have to believe that an official response to shore up SEK fortunes will arrive in coming months, prefer expressing in GBPSEK or EURSEK if bearish reversal develop enough credibility.</span></li> </ul> <p><span><strong><span>USD: watching inflation-related data today, debt ceiling lifting.<br /> </span></strong></span><span >Two data points today will help determine whether the US dollar remains bid tactically. These are the PCE inflation data up today, with a core month-on-month surprise in either direction from the +0.3% expected a tactical catalyst for direction. Also remember that the final May University of Michigan sentiment survey will get extra play today after the preliminary release earlier this month saw long-term (5-10yr) inflation expectations in the survey rising to 3.2%, a high above the range since 2011. These may inspire some short term volatility, but the reaction could get quickly drowned by an announcement of a debt ceiling deal-in-principle as soon as today (it&rsquo;s futile to track this story, as one day&rsquo;s collapse yields to the next day&rsquo;s optimism, but the latest according to sources is that a</span><span >&nbsp; </span><span >possible two-year deal could be in the works, though Freedom Caucus Republicans are a risk for scuttling this plan if Democrats can&rsquo;t be found in favour of making it a bipartisan effort.). The presumption is that eventually, the liquidity pressures from the US Treasury issuing a net $500 billion or so of new treasuries will support the green-back. But how much of this is already in the price? We may soon find out.</span></p> <p><span><strong><span>Swedish krona &ndash; countdown to more robust official response?<br /> </span></strong></span><span >The Swedish krona has suffered another aggravated sell-off as the country faces widening concerns of a credit crunch and weak economy on the cratering property market. The local FSA has unhelpfully bemoaned the wobbly property developers, arguing that they should seek to deleverage by raising capital and selling assets. This is impossible in a post-property bust environment as no new capital wants exposure to the sector and listing properties on a market that already faces weak liquidity on shriveling demand would crystallize even worse losses as price pressures would inevitably accelerate. The Swedish yield curve points to the gloomy outlook for the country, as the 2-10 yield curve is almost -65 basis points compared to -71 basis points today in the US despite Swedish 10-year yields trading some 135 basis points lower at 2.43%.</span></p> <p><span>Today, Riksbank Deputy governor suggested that the Riksbank should consider accelerating its quantitative tightening if the currency continues to weaken, Governor Thed&eacute;en also weighed in that the krona is a problem, and yet another Riksbank official echoed these comments. Riksbank measures can help to shore up the risk of further downside here, but the powerful medicine would be a clean-up of the property sector and perhaps creation of a &ldquo;bad bank&rdquo; to lift the worst assets from banks and allow them to continue providing credit (household lending growth has dropped to the lowest level in a generation in recent months). This and a considerable expansion of Swedish government bond issuance even on top of QT to deepen local sovereign debt markets are needed to get SEK back into its historic range back below EURSEK of 10.00. Let&rsquo;s see how long this takes, but beginning to get contrarian to further SEK weakness &ndash; more on chart below.</span></p> <p><span><strong><span>Chart: EURSEK<br /> </span></strong></span><span >A solid reversal in EURSEK today on verbal intervention from Riksbank officials, but it would need to extend significantly to suggest a more robust rejection of the new highs above 11.48, and ideally, a retreat to at least 11.25 together with some more firm sense of a policy response as outlined above is likely needed to suggest a secular top &ndash; but we&rsquo;ll be on watch for that potential.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/26_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The SEK weakness has gotten extreme &ndash; watching for mean reversion potential now that we are beginning to see more pushback from officialdom. Elsewhere, the JPY continues to push lower on, while the US dollar has already risen considerably ahead of the likeliest time frame for a debt ceiling lifting announcement (coming few trading days). How much is already in the price? And sterling has managed to avoid further turmoil on the unsettling rate spike after the latest inflation print, which raises the risk of the BoE being forced into an economy-cratering series of further hikes.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/26_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >AUDNZD is bidding for a flip to positive on today&rsquo;s close.</span><span >&nbsp; </span><span >Elsewhere, GBPNOK is a remarkable one now, having held the positive trend for 102 trading days without a turn &ndash; probably getting old in the tooth if Norway always wakes up and smells the policy coffee on NOK.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/26_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US Apr. PCE Inflation&nbsp; </span></li> <li><span>1230 &ndash; US Apr. Preliminary Durable Goods Orders </span></li> <li><span>1400 &ndash; US Final May University of Michigan Sentiment/Inflation expectations</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 26 May 2023 11:50:00 Z2023-09-23T10:11:18Z{98027E5E-1C26-4DA4-B1E3-8CE53284E2EC}https://www.home.saxo/en-hk/content/articles/forex/fx-update-sterling-has-a-problem-rbnz-dovish-shocker-24052023John Hardyproduct-forexHighlighted articlesFX Update: Sterling has a problem. RBNZ dovish shocker.<div class="article-excerpt">Sterling is lower despite hot April numbers shocking short UK rates higher, not a good look for the currency. Elsewhere, USD and JPY wrecking balls may be warming up, while RBNZ blasts kiwi lower.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/an-ugly-feeling-about-yesterday-s-pivot/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Spike in core UK CPI figure with higher rates and low sterling? This could get toxic.</span></strong></span></li> <li><span><strong><span>RBNZ shocks by declaring sudden end of tightening cycle after 25 bp hike.</span></strong></span></li> <li><span><strong><span>US dollar and JPY could become the twin wrecking balls on risk-off deepening.</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>USD: </span></strong></span><span>widespread strength outside of USDJPY (as new risk-off tone today and lower yields resets the agenda for the moment for the JPY &ndash; more below). Beginning to look like a USD-positive capitulation, with EURUSD failing 1.0725-1.0750 cementing the bigger picture.</span></li> <li><span><strong><span>NZD:</span></strong></span><span> Downside traction for NZDUSD for those who held on &ndash; difficult risk/reward here but likely headed for sub-0.6000 with 0.6200 as resistance. AUDNZD has given both bulls and now bears whiplash. Similar story &ndash; more upside risk than downside now, but risk/reward a difficult proposition. Longs to focus on 1.0900+ on break above 1.0750 in coming days.</span></li> <li><span><strong><span>GBPUSD: </span></strong></span><span>Shorts can tighten stops to just above 1.2450 &ndash; eyeing a breakdown of 1.2350 as possibly setting up 1.2200 or even 1.2140.</span></li> <li><span><strong><span>USDJPY</span></strong></span><span>: neutral now after risk sentiment shift. More interest in long JPY in other crosses if technical line up in coming days and even now if EURJPY stays below 150.00 and GBPJPY if today&rsquo;s highs just shy of 173.00</span></li> </ul> <p><span><strong><span>Sterling: a new cycle high in core CPI not what the doctor ordered.</span></strong></span></p> <p><span>The UK inflation prints rolling in this morning triggered a tremendous jump in UK short rates, with the 2-year trading almost 30 basis points higher at one point before pulling back. Sterling knee-jerked higher in the initial reaction but then rolled over to the weak side. The most worrying number was the 6.8% YoY rate in core inflation, a massive 0.6% jump and a new cycle high versus the unchanged 6.2% that was expected.</span></p> <p><span>It is a very ugly look for a currency when a huge leap in more hawkish central bank anticipation fails to support the currency. The Bank of England will have no choice but to continue tightening rates, holding its nose all the while on the knowledge that this aggravates the incoming recession risks again, and this just after it was rolling out a more positive message on the economy. The UK is dogged by supply-side shortages, particularly in labor that are the chief Brexit &ldquo;gift&rdquo; that just seems to keep in. With inflation this high, the fiscal impulse may also have to weaken or in any case, a stagflationary economy leaves both fiscal and monetary authorities in a bind with no room for maneuvering. GBPUSD looks set to break down further (last local support in 1.2350 area) and EURGBP just rejected the new local lows posted after the CPI data release this morning. Safe to say that sterling is back on negative watch.</span></p> <p><span>Bank of England Governor Bailey is out speaking on &ldquo;inflation and the economy&rdquo; at a WSJ event &ndash; hmmm.</span></p> <p><span><strong><span>RBNZ shocks dovish with end-of-tightening message.<br /> </span></strong></span><span >The RBNZ administered its own shock overnight by suddenly declaring that its rate tightening cycle is over after hiking the expected 25 basis points, a profound dovish shock that puts an emphatic end to the recent bout of kiwi strength as the market had to neutralize the forward expectations for further hikes. AUDNZD ripped back above 1.0600 and even well above 1.0700 in a huge bullish reversal, and the bottom dropped out of NZDUSD &ndash; with the lows for the year suddenly not far away in the just below 0.6100 (more below). The RBNZ is solidly optimistic on outcomes for the economy, not ratcheting up concern levels in rolling out this now more dovish forward guidance, but simply declaring that it is confident that has done enough now for the</span></p> <p><span><strong><span>Chart: NZDUSD<br /> </span></strong></span><span >The bottom dropped out of NZD on the RBNZ&rsquo;s sudden dovish tilt on guidance and the Dollar index is breaking up here, a double whammy for NZDUSD, which has sliced down through the 200-day moving average again, a level that hasn&rsquo;t really corralled the action very well this year. The lows for the year just below 0.6100 area suddenly not far away and if the current sentiment shift for the worse extends, the pair could be looking at 0.6000 and even deeper retracement levels, like the 61.8% retracement down just above 0.5900.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/24_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Risk sentiment on tilt &ndash; watching out for USD and JPY wrecking ball.<br /> </span></strong></span><span >A real change in tone was seen across markets yesterday, as we discussed on this morning&rsquo;s Saxo Market Call podcast. The USD was already firm of late, but today we have seen the Dollar Index in breakout mode higher as EURUSD threatens the last shreds of retracement support just below 1.0750. We are on watch for a full capitulation there and, as we have noted, a solution to the debt ceiling could extend USD strength. USDJPY, meanwhile, is a slightly different story as the JPY might post a comeback in the crosses if this negative mood across persists and is accompanied by stable to lower long sovereign bond yields.</span></p> <p><span>On the US debt ceiling issue, the latest standoff could mean we have to test Yellen&rsquo;s time schedule for a US default before some kind of solution emerges. Anything can happen here, but I am convinced that the Biden administration would rather risk a constitutional crisis (for example by invoking the 14<sup>th</sup> amendment) than allowing even a technical default. Another possibility is that stop-gap bills are passed that only punt the issue a few months down the road at a time, keeping the political blame game thriving until the 2024 election. This could prove very damaging for the severity of the US recession if spending on social programs is impacted.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >NZD likely to turn negative very quickly after shock today. SEK is currently the weakest G10 currency as EURSEK posted a new high today since the global financial crisis. Closely watching sterling status as a softer currency after a strong rates impulse is a concern. USD now leading on the strong side, but note shift of JPY momentum over last two days.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/24_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >A pivotal day for sterling pairs though we should watch for the end of the day to see if sterling ends mixed or pointedly weaker. NZD will be rolling over nearly everywhere once today&rsquo;s move shows up more in the moving averages. The USD is looking at closing today in an uptrend against all of the other G10 currencies.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/24_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1300 &ndash; UK Bank of England Governor Bailey to speak at WSJ event on &ldquo;inflation and the economy&rdquo; </span></li> <li><span>1430 &ndash; EIA's Weekly Crude and Fuel Stock Report </span></li> <li><span>1610 &ndash; US Fed&rsquo;s Waller (voter) to speak </span></li> <li><span>1700 &ndash; US 5-year Treasury Auction </span></li> <li><span>1800 &ndash; US FOMC Meeting Minutes</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 24 May 2023 11:45:00 Z2023-09-23T16:55:54Z{0EA46D3C-D551-41B9-8050-BD84156CF7A5}https://www.home.saxo/en-hk/content/articles/forex/fx-update-a-debt-ceiling-solution-would-likely-boost-usd-22052023John Hardyproduct-forexHighlighted articlesFX Update: A debt ceiling solution would likely boost USD.<div class="article-excerpt">The recent rally in the US dollar may be the beginning of a recognition that once the US does finally lift the debt ceiling, liquidity could be tight and USD-supportive, but evidence is mixed across markets.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/debt-ceiling-talks-a-headline-risk-nuisance-this-week/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>USD and the scenario post-raising of the debt ceiling. Headline risks until a deal is done.</span></strong></span></li> <li><span><strong><span>Mixed evidence on how seriously market is taking the forward risks on debt ceiling standoff ending and eventual US recession.</span></strong></span></li> <li><span><strong><span>Next up this week are RBNZ and UK CPI</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>USD: </span></strong></span><span>lots of headline risk on debt ceiling issue this week, a firm deal in place, even if a stop gap will likely see challenging USD liquidity conditions on the US treasury rebuilding its reserves with an issuance blitz, which is USD supportive. <strong><em>USDCHF may be one of the highest beta pairs on US debt ceiling outcomes. Also, USDCNH sold off on some verbal intervention from China, but looks ready for further gains toward 7.15 after bouncing smartly today.</em></strong></span></li> <li><span><strong><span>NZD:</span></strong></span><span> Big test for NZD traders this week on RBNZ and whether it rewards new long positions with hawkish guidance. AUDNZD has broken down as long as it stays south of 1.0600 post-RBNZ, while NZDUSD is near last-gasp resistance into 0.6300 area, needing an RBNZ disappointment for downside traction.</span></li> <li><span><strong><span>GBPUSD: </span></strong></span><span>the downside momentum is poor, but shorts from last week are sitting on better than break-even area risk with stops just above 1.2500. UK CPI Wednesday morning is the next step.</span></li> <li><span><strong><span>USDJPY</span></strong></span><span>: was batted back down on Friday after a surge above resistance, with US long treasury yields the key coincident indicator. Eyeing 140.00+ if 137.50-137.00 continues to support.</span></li> </ul> <p><span><strong><span>USD and eventual debt ceiling deal<br /> </span></strong></span><span >The USD rally was partially checked on the announcement Friday that debt ceiling talks had collapsed. We discussed last week that a deal to lift the ceiling could drive considerable USD strength due to the need for the US treasury to rebuild its reserves to the tune of perhaps half a trillion USD. It feels like an exercise in futility to discuss the latest debt ceiling talk developments, as the sense of compromise that was in circulation late last week evaporated entirely on Friday. With Biden back in Washington after the G7 trip to Japan, direct talks between the White House and House speaker McCarthy are set to resume today. Time is drawing short ahead of the supposed June 1 crunch time that Treasury Secretary Yellen has laid out, with the US Senate not even in session this week and the House only meeting through Thursday before a long Memorial Day weekend, returning next Tuesday, May 30.</span></p> <p><span>The run higher in the Swiss franc may reflect debt ceiling concerns as it is worth noting EURCHF has taken out the 0.9700 area in today&rsquo;s trade after a jerk lower late Friday on the collapse of US debt ceiling talks. The 0.9000 area in USDCHF has also given way and that pair may be one of the highest beta pairs to an actual deal being announced for those wishing to trade outcomes on the issue.</span></p> <p><span><strong><span>Chart: USDJPY<br /> </span></strong></span><span >The evidence is mixed on how seriously the market is taking the US debt ceiling issue itself, as well as the implications for global liquidity presuming a deal is announced. On the one hand, the US dollar and long US treasury yields backing up might suggest that there is growing recognition afoot that a solution could bring a liquidity pinch for a time across global markets as the US treasury rebuilds its account. Those higher long US yields certainly seem to be a driver of USDJPY upside, with a test higher still ahead if the US 30-year T-bond can clear 4.00% and the 10-year remains above 3.65%. On the other hand, broad risk sentiment globally looks very complacent, so attribution to what has driven the USD and US treasury yields higher is unclear until we finally get a deal in place. Interesting to note the similar and perhaps even more intense reactivity to the debt ceiling news flow in USDCHF, as discussed above. Complicating the liquidity issue is the forward outlook for the US economy, which could temper any rise in longer yields if data continues to weaken, though it is a slow week for macro data.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/22_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>RBNZ up Wednesday as market reacts to inflation expectations survey.<br /> </span></strong></span><span >The kiwi found further strength overnight and broke higher versus the Aussie on the release of a Q2 RBNZ inflation expectations survey which showed the surveyed expecting 6% wage gains and 7.4% price inflation in the coming year, versus 7.0% for the latter in Q1. (The usefulness of these surveys highly questionable &ndash; according to that same survey, 2-year inflation expectations are at 4.5%, while 5-year ahead are at 1.1%!) This after a different Q2 survey less than two weeks ago showed lower inflation expectations than expected. In any case, AUDNZD managed to clear 1.0600 and traded at its lowest since December. It is tough to argue that the RBNZ expectations can be guided significantly higher in relative terms to other central banks with the forward curve inching toward a 6.00% terminal rate. The market respects the RBNZ after the surprise 50-bps hike in April to take the rate to 5.25%. Most are looking for a 25 basis point hike this week and a bit more than one further small hike in coming meetings. If this week&rsquo;s RBNZ meeting surprises hawkish, it could drive one last leg of NZD strength, but the bar to surprise hawkish is probably at a 50-basis point hike. A 25 basis point hike and two-day guidance would be the dovish surprise.</span></p> <p><span><strong><span>Eurozone flash PMI data up tomorrow, UK CPI Wednesday.<br /> </span></strong></span><span >The flash May PMI for Europe and much of the rest of the world are up for now after the European economy has gotten a boost from the fiscal spend to deal with new spending priorities to shore up the risks from soaring energy prices and national security emergency from Russia&rsquo;s invading Ukraine. A collapse in energy prices since last year has provided about as much support as it can, meanwhile. The divergence is extreme between the Services sector rebound and the ugly state of affairs in European manufacturing.</span></p> <p><span>UK CPI is up on Wednesday and could finally get sterling on the move after EURGBP has settled in no-man&rsquo;s-land below 0.8700 with no momentum. The market has priced almost two more rate hikes from the BoE this year. The May claims and payrolls data will be far more interesting in the weeks ahead than this week&rsquo;s CPI print after some eyebrow raising numbers, particularly for payrolls, in April.</span></p> <p><span ><strong>Table: FX Board of G10 and CNH trend evolution and strength</strong></span><span >.<br /> </span><span >The US dollar consolidating a bit here and we really need concrete developments on the debt ceiling situation to know where we stand. NZD standing tall and needing confirmation from RBNZ on Wednesday to justify its levels.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/22_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >For USD pairs &ndash; would like to see other side of debt ceiling deal for next steps. NZD pairs getting a big test with RBNZ Wednesday. GBP pairs could be pivotal on UK CPI on Wednesday.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/22_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US Fed&rsquo;s Bullard (non-voter) to speak </span></li> <li><span>0030 &ndash; Japan Flash May Manufacturing and Services PMI</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 22 May 2023 10:55:00 Z2023-09-23T10:14:33Z{557E9241-707A-4636-9887-99002B750226}https://www.home.saxo/en-hk/content/articles/forex/fx-update-usd-set-to-extend-this-leg-higher-17052023John Hardyproduct-forexHighlighted articlesFX Update: USD set to extend this leg higher?<div class="article-excerpt">The US dollar is breaking higher through resistance in places this morning after US Retail Sales partially reset the narrative yesterday. Today a focus on next steps if a more full-blown rally is set to unfold.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/what-shocks-this-market-out-of-the-0dte-volatility-dampener/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>USD taking a stab at breaking up this morning &ndash; what could drive an extension and the next levels to look for.</span></strong></span></li> <li><span><strong><span>AUD and JPY weak on weak metals, firmer yields</span></strong></span></li> </ul> <p><span><strong><span>Trading and bias notes: </span></strong></span></p> <ul> <li><span><strong><span>USD: </span></strong></span><span>Testing new highs in places (EURUSD support 1.0850 broke &ndash; more below) and confirming some of the recent USD-bullish reversals, not sure what gives it tactical momentum unless we get a stickier sell-off in treasuries or something that impacts risk sentiment more broadly. No obvious major catalyst until possibly G-7 meeting this weekend or, more importantly, USD ceiling issue clearing (which should play USD-bullish).</span></li> <li><span><strong><span>NZD:</span></strong></span><span> NZDUSD has found resistance ahead of 0.6300 and bears happy to remain bearish below that level, but NZD firm on very weak AUD (AUDNZD spilling far below the 1.0700 area and thus shifting focus back for downside trend continuation</span></li> <li><span><strong><span>GBPUSD: </span></strong></span><span>yesterday rewarded the bears and testing below local support now near 1.2450 and bears can bring down stops to slightly above 1.2500. </span></li> <li><span><strong><span>USDJPY</span></strong></span><span>: Risk of big swing higher if US 10-year treasuries pressure top of range and toward 3.75%, and as recent bearish reversal setup now rejected. 200-day moving average in play today.</span></li> </ul> <p><span><strong><span>USD breaking higher: drivers and next steps.</span></strong></span></p> <p><span>The US dollar is breaking higher this morning, in part as momentum spills over from yesterday&rsquo;s pop higher in US treasury yields on the release of the stronger than expected US Retail Sales for April, although the move in yields didn&rsquo;t move that convincingly and only the 30-year benchmark US treasury yield has threatened above interesting range highs. </span></p> <p><span>So one driver is firmer US data not quite fitting the narrative of an incoming recession, but I suspect the larger driver here could simply be on &nbsp;on a reduction of USD short positioning on the prior &ldquo;policy divergence&rdquo; narrative that drove EURUSD above 1.1000 and even GBPUSD above 1.2600, that the ECB and BoE still had some considerable further room to continue tightening policy rates while the Fed was set to pause and could even be easing by late Q3.&nbsp; That narrative reached its apex and simply can&rsquo;t be extended further in the near term, barring a sudden and ugly emergency in the US that doesn&rsquo;t spill into global risk sentiment. Arguably, that something could be the debt ceiling issue. But that issue is a double-edged sword, as we all can anticipate extensive pressure on USD liquidity (USD-positive) from the moment a deal is hammered out and the US Treasury has to rebuild its account at the Fed by hundreds of billions of USD, issuing a flurry of treasuries.</span></p> <p><span><strong><span>Latest on debt ceiling talks:</span></strong></span><span> There were few developments of note from talks yesterday between House speaker McCarthy and the Biden White House, although the former at least once expressed the hope that this week could see a deal move nearer, while observers suggest it is promising that White House representatives are willing to negotiation with Congressional Republicans.</span></p> <p><span><strong><span>What to watch next:</span></strong></span><span> From here, we will continue to watch US data that continues to roll in, although this is mostly minor until the week after next. Initial weekly claims tomorrow are the next data point of note and then next Friday the 26<sup>th</sup> we have both the PCE inflation data for April and the final University of Michigan Sentiment survey for May, the preliminary version of which showed the pop in long-term inflation expectations to the highest since 2011. Otherwise, US treasury yields are an important coincident indicator for whether this USD move will develop more energy or reverse &ndash; a break higher in long treasuries the most likely to generate the most volatility. And watching USDCNH, which just crossed above the important 7.00 level in today&rsquo;s trade.</span></p> <p><span><strong><span>Chart: EURUSD<br /> </span></strong></span><span >EURUSD pushed lower through the local 1.0850 lows, getting a bit of extra fuel in today&rsquo;s session from a final Eurozone headline CPI that was revised slightly lower (to 0.6% MoM vs. 0.7% originally estimated). The pair is entering an important zone here, with the 100-day moving average looming into view just above 1.0800 (it proved pivotal support back in March). The bigger capitulation level that more firmly would set up expectations for a test of the 1.0500 range lows (also near the 200-day moving average) is the 61.8% of the entire rally sequence from the March lows at 1.0737. </span><strong ><em>To test 1.0500 I suspect we would need a range break to the upside in treasuries, aggravated risk aversion whatever the cause, or to be on the other side of a debt ceiling solution.</em></strong></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/17_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>AUD and JPY weak on metals slump, yield rise respectively.<br /> </span></strong></span><span >The AUD is weak in the crosses ahead of the employment data tonight and despite the surprise hawkish shift from the RBA of late as weak metals prices remain a negative drag (a big shadow over Aussie across the board as long as copper remains below its 200-day moving average) and as negative Chinese data has weighed this week, with USDCNH sprinting higher into 7.00+ a further negative focus for the Aussie. For the yen, it is simply the rebound in US treasury yields that has the JPY lower across the board again, possibly as well due to a slightly negative surprise in the GDP deflator reading in Japan&rsquo;s otherwise strong Q1 GDP estimate out overnight. Do note that USDJPY has been interacting with its 200-day moving average again.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The US dollar has spilled above resistance in today&rsquo;s trade &ndash; watching for follow-on action if the break holds and coincident indicators as discussed above.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/17_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >An increasing number of USD pairs flipping into positive trending territory, with USDCHF making a bid to pull higher and GBPUSD threatening a flip to negative today. The NZDUSD situation is finely balanced, most likely due to AUDNZD capitulation. Note Gold also now trending lower on the break below 2,000 as long as today&rsquo;s move holds.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/17_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1</span>230 &ndash; US Apr. Housing Starts / Building Permits</li> <li><span>1700 &ndash; US Treasury to auction 20-year bonds </span></li> <li><span>0130 &ndash; Australia Apr. Employment Data</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 17 May 2023 10:45:00 Z2023-09-23T08:19:51Z{A12C08CA-CE26-43D4-9A72-912DDD167792}https://www.home.saxo/en-hk/content/articles/forex/fx-update-gbp-shrugs-off-bad-employment-numbers-16052023John Hardyproduct-forexHighlighted articlesFX Update: GBP shrugs off bad employment numbers.<div class="article-excerpt">Sterling has somehow brushed off ugly labor market data, but let’s see if GBPUSD remains in the shadow of the recent sell-off. USD traders, meanwhile focus on US Retail Sales and debt ceiling talks later today.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/us-umich-sentiment-survey-the-worst-of-both-worlds/" target="_blank">Saxo Market Call</a>&nbsp;podcast</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>Ugly UK payrolls data hits sterling and UK short rates. The latter stuck lower while sterling impressively rebounded. Key zone of uncertainty for GBPUSD here.</span></strong></span></li> <li><span><strong><span>USD traders awaiting US Retail Sales data today and debt ceiling talks.</span></strong></span></li> </ul> <p><span><strong><span>Trading bias notes: </span></strong></span></p> <ul> <li><span><strong><span>USD: </span></strong></span><span>Key event risks today including Retail Sales and US debt ceiling talks. EURUSD bears will want 1.0900 to provide resistance, although no real reversal unless we pull back to 1.1000.</span></li> <li><span><strong><span>NZD:</span></strong></span><span> After big reversal, bears may continue to fade NZDUSD rallies that stay short of 0.6300 area. AUDNZD heavy after Chinese data &ndash; needs to find support near 1.0700 or this bounce from recent lows looks endangered.</span></li> <li><span><strong><span>GBPUSD: </span></strong></span><span>impressively brushed off very ugly numbers today. Risk reward for bears to test short case from here to perhaps 1.2575 (abandoning above 1.2600) or to wait for follow through below 1.2450. </span></li> <li><span><strong><span>EURSEK</span></strong></span><span>: noted good risk/reward for testing short case yesterday in 11.30 area, but no follow through on sell-off and sub-11.25 attempt this morning. Now neutral.</span></li> </ul> <p><span><strong><span>Sterling: somehow ignores ugly employment data.<br /> </span></strong></span><span >A few surprising UK employment numbers rolled in this morning, include a massive drop in the &ldquo;payrolled employees&rdquo; data that PAYE sends out to -136k. The number is so bad that one can&rsquo;t help but imagine there might be a revision, but many job categories saw weakness, so there revision would have to be extreme to erase the concerning signal. The April Jobless claims number was also a worry, jumping unexpectedly to 46.7k vs. +26.5k in March. That&rsquo;s the worst number since the volatile data of early 2021 and above the pre-pandemic range of monthly claims. UK 2-year rates were marked about 10 basis points lower and sterling initially dropped sharply, only to recoup all of its losses and then some even while the reaction in rates largely stuck lower. I am putting sterling on negative watch after this data point, but EURGBP certainly not cooperating yet on that account. More on GBPUSD thoughts below.</span></p> <p><span><strong><span>Chart: GBPUSD<br /> </span></strong></span><span >GBPUSD once again found support, this time just before hitting on the critical 1.2450 area in the wake of the weak employment data today and rallying back to where it came from above 1.2500. To neutralize this recent sharp sell-off/bearish reversal, the pair needs to retake 1.2600+. Barring that development, the more compelling technical area now after this morning&rsquo;s downside test is the 1.2450 zone that could open up for a deeper sell-off as newly arrived bulls will be disappointed that the recent attempt above the former cycle high of 1.2450 failed to hold, also stimulating fresh bearish interest.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/16_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>USD: today&rsquo;s Retail Sales and Debt ceiling talks are the next steps<br /> </span></strong></span><span >The USD has backed off its recent strength this week, as EURUSD teased 1.0900 in this morning and USDJPY eased back after the rally extension yesterday. US Retail Sales for April on the docket today, with a slightly softer number expected (and reminder that this data is nominal). US home improvement giant Home Depot has been out reporting today saw its top-line results below expectation and guided for far revenue for this financial year to fall from 2 to 5 percent. Much of their current &ldquo;struggle&rdquo; is from the hangover after the incredible growth spurt from the pandemic-years scramble for new housing and home improvement on record low mortgage rates. More interesting for the broader and lower level retail picture is up over the next couple of days as Target reports tomorrow and Walmart on Thursday.</span></p> <p><span>Today also features the latest debt ceiling talks between the Biden White House and Congressional members, with some Republican Senators apparently hoping that House Leader McCarthy can be brought to soften up his position, with the latter in an untenable situation as any softening might bring rebellion in the Republican ranks. It is very difficult to measure market stress around this issue, but at least today offers a chance to measure how reactive the market is to both developments and non-developments (another walkout with no progress&hellip;). </span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >FX trends are very weak, with frequent mean reversion. Strongest signals are still below an absolute value of 2, which is rare.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/16_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Little to point to in new developments &ndash; awaiting USD status after today&rsquo;s important data release.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/16_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights (All times GMT)</span></strong><span></span></p> <ul> <li><span>1200 &ndash; Poland Apr. Core CPI </span></li> <li><span>1215 &ndash; US Fed&rsquo;s Mester to discuss economic and policy outlook </span></li> <li><span>1230 &ndash; Canada Mar. Manufacturing Sales </span></li> <li><span>1230 &ndash; Canada Apr. CPI </span></li> <li><span>1230 &ndash; US Apr. Retail Sales </span></li> <li><span>1315 &ndash; US Apr. Industrial Production and Capacity Utilization </span></li> <li><span>1400 &ndash; US May NAHB Housing Market Index </span></li> <li><span>1400 &ndash; ECB President Lagarde to speak </span></li> <li><span>1400 &ndash; US Fed&rsquo;s Barr (Voter) to testify before House Financial Services Committee </span></li> <li><span>1615 &ndash; US Fed&rsquo;s Williams (Voter) to speak </span></li> <li><span>1830 &ndash; US Fed&rsquo;s Goolsbee (Voter 2023) to speak </span></li> <li><span>1915 &ndash; US Fed&rsquo;s Logan (Voter 2023) to speak </span></li> <li><span>2350 &ndash; Japan Q1 GDP&nbsp; </span></li> <li><span>0130 &ndash; Australia Q1 Wage Price Index</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 16 May 2023 10:50:00 Z2023-09-23T14:17:11Z{AED98F48-C0A0-402E-8A55-3D4290BB92A7}https://www.home.saxo/en-hk/content/articles/forex/fx-update-friday-us-boost-fading-kiwi-getting-a-mashing-15052023John Hardyproduct-forexHighlighted articlesFX Update: Friday USD boost fading, kiwi getting a mashing.<div class="article-excerpt">The JPY is struggling once again after the Friday US inflation expectations figure from the University of Michigan survey reset US treasury yields higher. US Retail Sales tomorrow next test for the greenback.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/us-umich-sentiment-survey-the-worst-of-both-worlds/" target="_blank">Saxo Market Call</a>&nbsp;podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-may-15-2023-15052023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> </span></strong></span></p> <ul> <li><span><strong><span>The latest victims of &ldquo;mean reversion&rdquo; are the JPY crosses after US inflation expectations data backs up yields and pummels the JPY.</span></strong></span></li> <li><span><strong><span>The kiwi (NZD) suddenly thrown under the bus since Thursday as latest victim of the &ldquo;mean reversion game&rdquo; on NZ&rsquo;s inflation expectations survey coming in soft late last week and contrasting with the hot US UMich number.</span></strong></span></li> <li><span><strong><span>Next steps for USD on April US Retail Sales tomorrow.</span></strong></span></li> </ul> <p><span><strong><span>Bias shifts today: </span></strong></span></p> <ul> <li><span><strong><span>USD: </span></strong></span><span>Rally still only achieving consolidation status so far &ndash; EURUSD short term trend is lower, but trends have worked poorly. Watching 1.0737 for status (61.8% retracement of rally from 1.0516 to 1.1095 high)</span></li> <li><span><strong><span>JPY: </span></strong></span><span>Neutral on its prospects after JPY crosses have backed up badly on the spike in yields. Fresh downside focus in EURJPY needs a bearish reversal of this rally.</span></li> <li><span><strong><span>NZD</span></strong></span><span>: Bearish technical Interest in fading NZDUSD rallies as long as they stay shy of 0.6300 for test of range lows toward 0.6100 and for AUDNZD upside for test toward 1.0900+ if we stay north of 1.0700 on closing basis..</span></li> <li><span><strong><span>GBPUSD: </span></strong></span><span>Found support at important 1.2450 area &ndash; that feels like the bull/bear line from here.</span></li> <li><span><strong><span>EURSEK</span></strong></span><span>: solid risk/reward for bears in the 11.30 area after soft core Swedish CPI data failed to sustain the rally today The 11.30 area looks like a fulcrum for the next leg of the action.</span></li> </ul> <p><span><strong><span>US inflation expectations accelerate USD rally, but that rally already easing.</span></strong></span></p> <p><span>The preliminary May University of Michigan sentiment offered up a pair of ugly surprises, as the long-term, 5-10 year inflation expectations survey suddenly jumped to 3.2% after staying in the range of 3.0% and lower save for two 3.1% readings in 2022. The June 2022 reading initially read 3.3%, we should recall, before the final survey for that month saw it revised lower to 3.1%, matching the level from January of last year and the highest since 2011 until yesterday&rsquo;s figure. It&rsquo;s of course just a survey, and other surveys are conflicting, including the Cleveland Fed&rsquo;s 10-year expected inflation, which is at 2.15%, although </span><a href="https://www.clevelandfed.org/indicators-and-data/inflation-expectations"><span>that survey</span></a><span> uses market-based measures as well as survey, and the surveys are of &ldquo;professional forecasters&rdquo; as opposed to the University of Michigan&rsquo;s surveys of &ldquo;consumers&rdquo;. In any case, Friday is the latest example of random data points leading the market around by the nose, only to not develop into anything sold because the next data point may say the opposite. The trouble is that now the Fed has likely reached a plateau for now on its policy, the market is impatient for a next step that may not come until we have had solid evidence of the one or the other scenario (cruising speed or recessionary risks rising) developing over the next couple of data cycles. The next data point of note is tomorrow&rsquo;s April US Retail Sales report, expected rather weak after two negative in February and March that came after the huge January surge, in part on mild weather.</span></p> <p><span><strong><span>Chart: NZDUSD<br /> </span></strong></span><span >Last Thursday we wrote about sterling possibly becoming the latest victim of the &ldquo;mean reversion game&rdquo; on the Bank of England event risk. That indeed was the case for the next couple of sessions. Since then, the kiwi suffered an even more severe case of whiplash after a Q2 NZ inflation expectations survey came in softer than expected a day before the US University of Michigan survey. The double whammy deflated NZDUSD all the way back to mid-range, an impressively bearish reversal only made less bearish by the long-standing range that this pair has found itself in that stretches back many months. A deepening gloom and more risk aversion is likely needed to get NZDUSD challenging the range lows below 0.6100, while this latest sell-off has dealt serious damage to any hopes that a rally would extend on the attempt above the April pivot high of 0.6379.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/15_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The NZD got marked down from strongest to middle range in just a couple of short session, while the US dollar is vying for a new uptrend but has so far merely consolidated much of the prior downtrend without showing real upside trending behaviour anywhere.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/15_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >EURSEK popped a bit higher on the softer than expected Swedish core inflation data reported today &ndash; it is in pivotal either/or area around 11.30. Note that GBPUSD is leaning close to flipping negative, but needs to show a close down through 1.2450-1.2400 with important UK earnings, claims and jobs data up tomorrow morning.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/15_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US May Empire Manufacturing </span></li> <li><span>1315 &ndash; US Fed&rsquo;s Kashkari (Voter 2023) to speak </span></li> <li><span>1600 &ndash; UK Bank of England&rsquo;s Pill to speak </span></li> <li><span>1800 &ndash; US Fed&rsquo;s Bostic (non-voter) to speak </span></li> <li><span>0030 &ndash; Australia May Westpac Consumer Confidence </span></li> <li><span>0130 &ndash; Australia RBA Minutes </span></li> <li><span>0200 &ndash; China Apr. Industrial Production / Retail Sales</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 15 May 2023 12:30:00 Z2023-09-23T14:38:11Z{997DF2A0-5A3D-4C75-8947-60D2E352982D}https://www.home.saxo/en-hk/content/articles/forex/fx-update-sterling-latest-to-play-mean-reversion-game-11052023John Hardyproduct-forexHighlighted articlesFX Update: Sterling latest to play mean reversion game?<div class="article-excerpt">Today we size up tomorrow’s US April CPI release and the potential magnitude of the market reaction, especially given that we have a market that seems in search of a catalyst, even if a short term one.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/mean-reversion-continues-sterling-next/" target="_blank">Saxo Market Call</a>&nbsp;podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-may-11-2023-11052023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> Mean reversion the name of the game recently &ndash; sterling set to join in?</span></strong></span></p> <p><span><strong><span>Bias notes today: </span></strong></span></p> <ul> <li><span><strong><span>AUD and CAD: </span></strong></span><span>recently have been on watch for bullish breakouts, but these never materialized, and given the copper breakdown overnight, if that holds, looking for AUDUSD downside as long as price action stays south of 0.6800 for at least a range trade.</span></li> <li><span><strong><span>JPY: </span></strong></span><span>the long JPY bias worked a bit yesterday in USDJPY and EURJPY on the dip in yields, but the lack of momentum building today is a slight concern very tactically, even if a chart top is in place for now based on the recent reversal. With EURUSD suffering, more interested in EURJPY downside break potential.</span></li> <li><span><strong><span>EURUSD</span></strong></span><span>: leaning negative for a try toward 1.0800 if we stay below perhaps 1.0980. Conviction not strong, but supported by positioning. US jobless claims the data risk in a rather flaky market.</span></li> <li><span><strong><span>GBP</span></strong></span><span>: Have a bias that Bank of England will be sterling negative tactically, but we have already seen a solid move lower ahead of the event risk today. Will update tomorrow.</span></li> </ul> <p><span>Yesterday once again demonstrated a market that doesn&rsquo;t want to sustain directional moves for long after the US CPI triggered a slide in US treasury yields and the US dollar. While yields stay lower, the greenback entirely failed to hold and has even reversed quite aggressively higher into the early European trading today. The euro continues its weakness, while the JPY rally attempt yesterday on the dip in yields has also failed to sustain as the wily USDJPY has bobbed back above 134.75 after testing below 134.00 overnight. AUDUSD ran lower on weak China CPI data and especially as copper tests below its 200-day moving average this morning &ndash; a critical coincident indicator for the Aussies, and likely the reason that AUDNZD is testing the last shreds of support.</span></p> <p><span><strong><span>Bank of England</span></strong></span><span>: another mean reversion setup? Given nearly every direction move of late has failed to find fuel as this market scratches around for a narrative, one wonders whether the last couple of weeks of extensive sterling strength will also mean revert/consolidate on the Bank of England event risk today. (The struggle to get momentum going almost anywhere is reflected in the two months of bottled up range trading in US treasury yields &ndash; arguably we should all wait for a break of the 2-year or 10-year yields out of the range as the next big macro signal). The BoE is expected to hike the policy rate 25 basis points, and the forward curve looks a bit aggressive at over 40 additional basis points of tightening through the November meeting, by which time the Fed will supposedly be cutting for the second time by 25 basis points. One half of that scenario feels unlikely, unless the US is making an own goal by taking the debt ceiling issue beyond the brink (some sort of spending limitations seem more likely to me than any technical defaults on treasuries, in my view.) Will the BoE be willing to signal as much further tightening here as the market has priced? The bar feels higher for a hawkish than dovish surprise today, especially as BoE Governor Bailey seems ever reluctant to favour a clear hawkish message. Any suggestion that the BoE is revisiting its aggressive disinflation forecasts could help justify market expectations. </span></p> <p><span><strong><span>Chart: GBPUSD<br /> </span></strong></span><span >GBPUSD closed almost unchanged for three consecutive days after getting capped yesterday on the failure of the greenback to stay lower in the wake of the CPI release. If the BoE surprises dovish, the first focus will be the psychological 1.2500 rea, but the 1.2450-00 area looks far more important here for whether cable will remain in this uptrend. To the upside, the next focus is the 61.8% retracement of the entire sell-off from the 2021 highs of 1.4248 (can you believe it) to the panic lows of Truss-Kwarteng near 1.0350 (can you believe it).</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/11_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The Euro weakness is only exceeded by CNH weakness, but note the huge momentum shift lower after its former strength. Elsewhere, JPY has a long way to go to prove itself &ndash; needing a more significant yield melt-down to confirm the recent reversal in some JPY crosses. The NZD outperformance is looking stretched &ndash; NZ inflation expectations up tonight possibly key there.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/11_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >The EURNOK uptrend looks set to end unless we see a huge rally into the close today (after over 110 days in positive) Note that USDJPY is close to a downtrend, but needs another solid sell-off bar to confirm that it is developing momentum. It looks about the same for EURJPY.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/11_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1100 &ndash; UK Bank of England Bank Rate Announcement </span></li> <li><span>1130 &ndash; Bank of England press conference</span></li> <li><span>1230 &ndash; US Weekly Initial Jobless Claims </span></li> <li><span>1230 &ndash; US Apr. PPI </span></li> <li><span>1245 &ndash; US Fed&rsquo;s Kashkari (Voter 2023) speaking</span></li> <li><span>1415 &ndash; US Fed&rsquo;s Waller (Voter) to discuss financial stability and climate.</span></li> <li><span>1700 &ndash; US Treasury to auction 30-year T-bonds </span></li> <li><span>0300 &ndash; New Zealand Q2 Inflation Expectations</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 11 May 2023 09:35:00 Z2023-09-23T16:58:15Z{2662C164-D4AB-43DD-8676-AEEB1A2AC83E}https://www.home.saxo/en-hk/content/articles/forex/fx-update-gauging-the-us-cpi-reaction-potential-09052023John Hardyproduct-forexHighlighted articlesFX Update: Gauging the US CPI reaction potential.<div class="article-excerpt">Today we size up tomorrow’s US April CPI release and the potential magnitude of the market reaction, especially given that we have a market that seems in search of a catalyst, even if a short term one.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/what-shoe-is-this-market-waiting-for-to-drop/" target="_blank">Saxo Market Call</a>&nbsp;podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-may-9-2023-09052023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> JPY cross focus through the US CPI release tomorrow. As we search for the next significant catalyst, we size up the magnitude of market volatility to the last four US CPI releases ahead of tomorrow&rsquo;s April inflation numbers.</span></strong></span></p> <p><span><strong><span>Bias notes today: </span></strong></span></p> <p><span><strong><span>AUD and CAD: </span></strong></span><span>Consolidating recent pointed strength &ndash; watching 0.6800 as a trigger area for technical AUDUSD longs (likely requires more risk-on and commodities, especially metals, to wake up.) A soft US CPI tomorrow would be the most interesting test for USD bears.</span></p> <p><span><strong><span>JPY: </span></strong></span><span>It is time for the JPY to make a statement one way or another after the pump and dump reaction post-BoJ meeting. Looking to add a downside focus on EURJPY to negative USDJPY focus if EURJPY remains south of 150.00 &ndash; especially if yields fall post-US CPI.</span></p> <p><span><strong><span>Chart: EURJPY<br /> </span></strong></span><span >Watching for downside follow through here after the pump and dump in many JPY crosses and the euro relative strength now possibly having exhausted itself as the market will find it difficult to market ECB expectation any higher, in relative terms at minimum, to global central bank peers. A soft US CPI release will help the bearish case if treasury yields fall post that release. Significant follow-through below 146.50 would suggest that we have rejected the entire attempt on the 15-year highs above the high water from last October near 148.40.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/09_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>US CPI releases of last four months and market reactions.<br /> </span></strong></span><span >The table below shows the expected and actual data from each of the last four US CPI releases for the December through March. It is always important to note that the market backdrop can be as deciding a factor as anything else. Take the February CPI release, which came out March 14, just days after the sudden collapse of Silicon Valley Bank and ensuing banking turmoil that it sparked. For FX traders, as general rule, any significant surprises in US data generally trigger stronger reactions in USDJPY than in other USD pairs if the data triggers significant volatility in US treasury yields. More comments on the last few releases and the Wednesday, May 10 release below the table.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/09_05_2023_jjh_update_015.png"/></div><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>The special context and market backdrop of this CPI release.</span></strong></span><span> Market energy is rather low here coming into this release, and EURUSD, for example, has been stuck in a tight range, having failed to stray more than 100 pips from the sticky 1.1000 level for nearly an entire month, while USDJPY has coiled around after the big pump-and-dump reaction to the Bank of Japan meeting on the Friday before last. The market feels comfortable with its expectations that the Fed will pause its tightening cycle from here, with a small minority even expressing the view that the Fed will be ready to cut at the July FOMC meeting and a 25 basis point cut almost fully priced for the September meeting and December priced over 70 basis points (-0.7%) below the current Fed Funds rate. </span></p> <p><span><strong><span>To see a significant volatility injection into this market</span></strong></span><span>, we&rsquo;ll likely need to see a surprise in the core data, preferably the M/M expectations (0.3% in this case.). An upside surprise is USD positive, while a negative surprise should play USDJPY negative and generally JPY positive, particularly if long US treasury yields dip. Whether a soft release (presumably a -0.1% miss) proves more broadly USD negative will depend on whether risk sentiment posts an enthusiastic reaction. Given that the market has already priced the end of the Fed tightening cycle and the beginning of rate cuts just over four months from now, with significant further cuts in 2024 we almost need a soft print to justify market expectations. It is far more difficult to ponder the reaction function to a hot release, which the market may try to look through, but the knee-jerk would probably be for a spike in USDJPY higher, risk-off (particularly in Nasdaq 100) and for higher US 2-year yields. The key in all cases is to watch the treasury market for confirmation of anything &ndash; without a move that sticks outside of the recent range in 2-year and/or 10-year yields, this CPI release may just be that much more short term noise. And note the split reaction last month (read as positive for sentiment, but then the market closed negative, while FX was less affected by the change in temperature).<br /> <span ><strong><br /> Table: FX Board of G10 and CNH trend evolution and strength</strong></span><span >.<br /> </span></span><span >The most notable development over the last five days is the mark-down in the Euro relative to its former top-dog status together with CHF. Without more positive buzz surrounding the China re-opening story or at least follow through higher in global risk sentiment, the NZD out-performance is beginning to look a bit stretched.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/09_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >EURNOK uptrend set to end if the pair closes lower. Watching USD pair status over tomorrow&rsquo;s CPI release and JPY status across the board.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/09_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US Fed&rsquo;s Jefferson (Voter) to speak </span></li> <li><span>1605 &ndash; US Fed&rsquo;s Williams (Voter) to speak </span></li> <li><span>1700 &ndash; US 3-year Treasury Auction </span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 09 May 2023 12:35:00 Z2023-09-23T02:16:57Z{6C95AE52-AE3D-4E42-BD14-89751E01759E}https://www.home.saxo/en-hk/content/articles/forex/fx-update-usd-faltering-with-wednesday-cpi-the-next-key-test-08052023John Hardyproduct-forexHighlighted articlesFX Update: USD faltering, with Wednesday CPI the next key test. <div class="article-excerpt">Big shift late last week in FX has the pro-cyclical commodity currencies as the new leaders, while the JPY and USD suffer the most weakness. US CPI on Wednesday is the event risk of the week for the greenback.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/big-sentiment-shift-friday-us-cpi-next-test-on-wednesday/" target="_blank">Saxo Market Call</a>&nbsp;podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-may-8-2023-08052023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> Huge sentiment shift on late last week has USD pointing lower and pro-cyclical currencies as the new leaders. USD focus on CPI on Wednesday, technical breakouts. CAD rips stronger on sentiment relief/BoC Governor Macklem hints.</span></strong></span></p> <p><span><strong><span>Bias shifts today: </span></strong></span></p> <ul> <li><span><strong><span>AUD and CAD: </span></strong></span><span>Huge reversal in sentiment has these currencies suddenly leading. AUDUSD potentially unleashed if 0.6800 break can hold for try toward 0.7000+. Won&rsquo;t fully have grasp of status for USD this week is CPI on Wednesday.</span></li> <li><span><strong><span>JPY: </span></strong></span><span>weak on recovery in yields and risk sentiment, but still looking to fade USDJPY rallies that fail to hold 136.00-50 zone. As for other USD pairs, Wednesday&rsquo;s CPI release is the key test day for USD.</span></li> <li><span><strong><span>NOK: </span></strong></span><span>the lows are likely in with this high momentum reversal, risk-reward difficult now after NOK has rallied this hard, but focusing back toward EURNOK 11.20 to start on the downside and NOKSEK toward parity.</span></li> </ul> <p><span><strong><span>Weaker USD, and JPY dips again, too. </span></strong></span><span>The USD fell further on Friday as risk sentiment improved further on the US April jobs data coming in stronger than expected, although the +90k beat of expectations was marred by a -71k revision of the March payrolls data. And the pessimists will have us believe that the trend toward more negative revisions suggests that the &ldquo;birth and death&rdquo; model that assumes much of what is initially reported in the payrolls data every month is over-estimating payrolls growth. Then again, at these very low levels of unemployment and a labor force that only grows as a function of a higher participation rate (due to fairly stagnant potential labor force), payrolls don&rsquo;t need to be much over 100k to keep the current record low modern unemployment rate steady.</span></p> <p><span>But the strong bounce in the US regional bank stocks, the immediate area of concern lately, late last week and especially Friday is likely a stronger source of sentiment relief and USD weakness. There was no readily identifiable catalyst for the bank stock rally, as regional banks continue to suffer headwinds in the form of deposits leaving and higher funding costs. The US economy can apparently take 5% rates for now, while small and medium sized US banks need more like 3%. Elsewhere, the solid bounce in yields late last week also capped the JPY&rsquo;s comeback ambitions for now, with the major JPY crosses still in the shadow of the recent sell-off, while AUDJPY has nearly &ldquo;reversed the reversal&rdquo;. For now, the USD looks on its back foot and could run lower still, especially if the equity market continues to climb the wall of worry on the eventually urgent issue of the US debt ceiling.</span></p> <p><span><strong><span>Chart: AUDUSD<br /> </span></strong></span><span >AUDUSD has refused to throw off directional signals for weeks, partially supported recently by a more hawkish than expected RBA, but held back by the sputtering China re-opening story and key metals prices that refuse to support the AUD-bullish case. This latest rally has the pair testing the 0.6800 level once again. Wednesday&rsquo;s US CPI release is the next critical test for USD pairs. A reading that cements market conviction in its forward view of the Fed and sees a break higher in US equities could finally see the pair testing above resistance. The next resistance area is arguably the 61.8% retracement of the sell-off earlier this year that comes in near 0.6930, but the bigger levels are the psychological resistance at 0.7000 and then the 0.7150+ highs of the year om early February, which would probably require a more robust commodities rally coming in as coincident support.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/08_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>CAD one of strongest currencies on Friday in delayed reaction to BoC Governor Macklem speech. </span></strong></span><span>The Canadian dollar rallied sharply on Friday in what appears a delayed reaction to a speech last Thursday from Bank of Canada Governor Macklem, who admitted that the Bank of Canada may need to tighten policy further and generally indicated more uncertainty on the path to returning inflation to 2%. "If we start to see signs that inflation is likely to get stuck materially above our 2% target, we are prepared to raise rates further&rdquo;. The same speech also fretted the risk of uncertain financial conditions, so the reaction was limited Thursday, when troubled US banks were most in focus last week. But when financial conditions/risk sentiment cleared dramatically on Friday and oil bounced, CAD and NOK were the strongest among G10 currencies, rallying more than 1% against the US dollar as USDCAD returned below its 200-day moving average and below 1.3400. The next level of note is the April pivot low of 1.3302.</span><span></span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >Note the red on the left half of the FX board, save for sterling, and the blue on the right, as the smaller currencies have rebounded versus the majors in recent days. NOK and CAD have the most upside momentum, while CHF is losing altitude quickly after the Friday rebound in EURCHF.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/08_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >The EURNOK uptrend looks to end in coming days after a remarkable 110 days and counting (flipped to an uptrend at around 10.50) GBPUSD has run away to the upside &ndash; lots at stake there with Bank of England on Thursday after the Wednesday US CPI data.. Elsewhere, note the faltering EUR pairs as its appeal as a pro-cyclical currency is less pronounced.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/08_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1400 &ndash; ECB Chief Economist Philip Lane to speak&nbsp; </span></li> <li><span>1800 &ndash; US Fed releases Senior Loan Officer Survey </span></li> <li><span>2000 &ndash; US Fed releases May Financial Stability Report </span></li> <li><span>2045 &ndash; US Fed&rsquo;s Kashkari (Voter 2023) to speak </span></li> <li><span>0030 &ndash; Australia May Westpac Consumer Confidence</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 08 May 2023 12:15:00 Z2023-09-23T02:11:28Z{AA16283E-2828-484E-BF99-F077C484579C}https://www.home.saxo/en-hk/content/articles/forex/fx-update-jpy-surges-as-us-banks-stole-limelight-from-powell-04052023John Hardyproduct-forexHighlighted articlesFX Update: JPY surges as US banks stole limelight from Powell.<div class="article-excerpt">Regional banks steal the spotlight from Powell, who was trying to avoid it anyway. US yields dropped sharply as risk sentiment sank, taking the JPY sharply higher. Norges Bank and ECB incoming.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/us-yield-plunge-risk-off-had-nothing-to-do-with-fomc/" target="_blank">Saxo Market Call</a>&nbsp;podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-may-4-2023-04052023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> FOMC defers to incoming data for next steps. JPY rips higher again as treasury yields plunge on fresh US regional bank concerns. NOK kneejerks higher on Norges Bank. ECB incoming.</span></strong></span></p> <p><span><strong><span>Bias shifts today: </span></strong></span></p> <ul> <li><span><strong><span>JPY: </span></strong></span><span>USDJPY trading focus shifting to selling strength (sub-136.50) unless data takes US yields back higher.</span></li> <li><span><strong><span>NOK: </span></strong></span><span>more constructive on finding ways to get long (NOKSEK) after FX mentioned in today&rsquo;s Norges Bank</span></li> <li><span><strong><span>EUR: </span></strong></span><span>awaiting how euro settles after ECB today. EURUSD pivotal in 1.1100 area.</span></li> <li><span><strong><span>AUD</span></strong></span><span>: looks very heavy again. Downside trending picking up in AUDNZD. Possibly AUDJPY also tilting lower (watch yields).</span></li> </ul> <p><span>The FOMC brought as little drama as conceivable, perhaps slightly on the hawkish side relative to market positioning and expectations, but it was clear from the statement and the Powell press conference that the Fed is attempting to deliver as little forward guidance on policy as possible. In the statement, the language pointing to further tightening was softened to indicate that incoming data will determine whether any further tightening is necessary. Powell&rsquo;s press conference saw the Fed Chair studiously avoiding sending anything that could be mistaken for pointed guidance. Some observers, <a rel="noopener noreferrer" href="https://www.bloomberg.com/opinion/articles/2023-05-04/fed-powell-s-narrative-revives-market-talk-of-a-pivot?srnd=premium-europe&amp;sref=FAeeuM97" target="_blank">like Bloomberg&rsquo;s John Authers</a>, did pick up on some nuances that were arguably dovish, but pulling away any message was all in the inferences. One of those, as Authers argues, is that Powell&rsquo;s lack of greater concern expressed on the regional bank issue helped spark an ugly slide in regional bank stocks late in the session yesterday, even before the press conference was done. And after the close, PacWest announcing that it was &ldquo;reviewing its strategic options&rdquo;, including a sale, spooked sentiment thoroughly and sent US yields lower still. </span></p> <p><span>The particularly are extremely different, but this feels a lot like Bernanke not having a sufficient grasp of the dangers of the leverage in the US housing market back in 2007. Could we be looking at another weekend sale of a bank and at what point does this situation become systemic until the Fed and other regulators provide a blanket approach to the issue &ndash; when two more banks go the same route, or ten or twenty? And can they do so with a dysfunctional Congress sidelined by the debt ceiling stand-off?</span></p> <p><span>This Fed is in hot water for having gotten the banking sector in this situation in the first place with its slow start to the tightening cycle and steep pace of rate increases. At the same time, inflation has not yet fallen sufficiently to justify the scale of rate cuts the market is pricing in for later this year (75 basis points of cuts priced through the December FOMC meeting) or next year unless this banking turmoil hits hard and fast and shows signs of tanking the economy inside the next three months. &nbsp;In reaction to last night&rsquo;s market developments, the JPY benefitted the most as poor traders are suffering whiplash after having sold the yen on last week&rsquo;s Bank of Japan meeting. In the wake of the ECB (more below), will be watching whether EURJPY also reversed back lower through perhaps 148.00, making the JPY reversal more or less a clean sweep.</span></p> <p><span><strong><span>Chart: USDJPY<br /> </span></strong></span><span >USDJPY has now backed out nearly all of the sharp rally that came on the heels of the Bank of Japan meeting last week as US treasury yields and a massive downdraft in crude oil prices are offsetting the yen-negative implications of the Bank of Japan taking a very slow approach to reviewing policy over as much as the next eighteen months. Still, for the JPY to generally head higher still (And USDJPY and other JPY crosses lower), we will likely need for US treasury yields to head lower still and possibly for other central bank expectations to begin flattening out and turning lower as well, so the ECB today will have a role to play (not yet out as I am writing these observations on USDJPY. In the specific case of USDJPY, this reversal means traders will likely prefer trading for more downside as long as the 136.50-137.00 zone continues to cap the action, with further confirmation of a more significant downtrend developing if we can start adding some weak US data into the mix (tomorrow&rsquo;s US jobs report, for example) and the price action pushes down through the 132.50 area, indicating a challenge of 130.00 eventually.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/04_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span>Early today, Norges Bank raised its deposit rate 25 basis points and guided for another hike in June. Short Norwegian rates were little changed on the day, but NOK put in a solid rally, likely on the indication that the Norges Bank gave that it is watching the currency, clearly suggesting that some appropriate level of concern on that front, which will mean further aggravated weakness could elicit a response. This may be the beginning of a far more two-way market in NOK and NOKSEK is perhaps a better way to start fading further NOK weakness from here than EURNOK. Oil is an important coincident indicator and note that is has poked at cycle lows after yesterday&rsquo;s fresh downdraft.</span></p> <p><span>ECB decision: The ECB decision is out just before posting this, with the announcement of a 25 basis point hike (as 90% or so expected) and guidance to &ldquo;ensure rates are brought to sufficiently restrictive levels&rdquo;. The euro is down slightly, which makes sense given it was bid to the top of the range in EURUSD ahead of the meeting and that we had to price out the minority view of a larger hike. Guidance for a cessation of reinvestments of the Asset Purchase Program as of this July was also in <a rel="noopener noreferrer" href="https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230504~cdfd11a697.en.html" target="_blank">the statement</a>. Short EU rates took this as marginally dovish, with the German 2-year knee-jerking several basis points lower. Watching that EURJPY for a possible bearish reversal if we close back below 148.00.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The weak AUD may be on the soft Caixin Manufacturing survey out overnight and the weak tone across commodities, though CAD and NOK deserve the most negative focus on oil prices (though do note the Norges Bank discussion above &ndash; NOKSEK and EURNOK are at such remarkable extremes). Elsewhere, note the massive momentum shift in JPY, which will take some time to result in a positive broad trend reading because the moving averages need some time to respond. Curious if USD gets upper hand on the Euro and sterling if risk off deepens.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/04_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Note comments on specific pairs above, including AUDNZD lurching lower again. And after both FOMC and ECB last couple of days and then tomorrow&rsquo;s US jobs data &ndash; a EURUSD status check on the Friday close important.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/04_05_2023_jjh_update_033.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1400 &ndash; Canada Apr. Ivey PMI </span></li> <li><span >1705 &ndash; Canada Bank of Canada Governor Macklem to speak</span></li> <li><span>1815 &ndash; Canada Bank of Canada Governor Macklem to speak </span></li> <li><span>0130 &ndash; Australia RBA Statement on Monetary Policy </span></li> <li><span>0145 &ndash; China Apr. Caixin Services PMI</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 04 May 2023 12:50:00 Z2023-09-23T17:10:12Z{5175F83F-E9C5-40EC-9183-C542F7A98873}https://www.home.saxo/en-hk/content/articles/forex/fx-update-rba-surprises-with-hike-fomc-preview-02052023John Hardyproduct-forexHighlighted articlesFX Update: RBA surprises with hike. FOMC preview.<div class="article-excerpt">The USD firmer on a steep USDJPY rally as the dovish BoJ tanked the JPY, but also on hot core inflation data in the Q1 US GDP estimate yesterday. A key few days ahead for the greenback through next Wednesday’s FOMC meeting.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/fomc-tomorrow-worth-hedging-the-sell-the-fact-risk/" target="_blank">Saxo Market Call</a>&nbsp;podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-may-2-2023-02052023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> FOMC tomorrow, RBA surprises with hike. </span></strong></span></p> <p><span>The market seems highly &ndash; almost excessively &ndash; reactive to incoming data as we saw once again yesterday with the release of the slightly firmer than expected ISM Manufacturing survey for April, for which the Prices Paid component bumped up to 53.2 versus 49.0 expected. That was a nine-month high. US treasury yields from 2- to 10-years ended the day some 15 basis points higher from Friday&rsquo;s close, with much of the action seemingly sparked by this survey release and focus on prices paid. </span></p> <p><span>Still, the more important data lies ahead, including ISM services tomorrow, claims on Thursday and the jobs report on Friday. And there just isn&rsquo;t enough in the directional surprises of the data of late for the Fed to change its tune or firmly position tomorrow&rsquo;s anticipated 25-basis point rate hike as the last one for now, as it ought to reserve some wiggle room for further moves, just in case. Still, the setup here is that Fed Chair Powell will likely want to say as little as possible in the way of guidance, which can leave the market to its own interpretations of the likely path from here (even when the Fed has tried to protest against the notion that it will be cutting rates later this year, the market largely ignores guidance anyway.). In sum &ndash; look for a Fed that is trying to avoid signaling very much and a market that may realize that it is too confident in the Fed rolling over to cutting by later this year. That could mean risk off and USD up. </span></p> <p><span>Then again, while I consider it unlikely, the Fed could theoretically indulge in confidence that inflation will flatten out and eventually fall back in line with its projections from March (core PCE forecast to fall to 3.6% by year-end) from here and/or at the margin is concerned enough about significant disruptions from the debt ceiling issue, the market may read this as dovish, risk sentiment could notch another sharp leg higher. Either way, it feels like the market has mostly already priced a pivot even if we get a small spurt higher, so surprising dovish beyond a day post-FOMC is the higher bar. Market expectations are drifting, in fact, in the direction of higher odds for an additional Fed hike in June.</span></p> <p><span>On the debt ceiling, US Treasury Secretary Yellen warned yesterday that the US could default as soon as early June if a raise of the debt limit is not passed. This comes after recent news that surprisingly high tax revenues in recent weeks were more likely to push the last gasp time frame out to late July or even August. She may just be trying to light a fire under Congress to get its act together and avoid last-second brinksmanship. The market hardly budged on the news. Biden and key congressional members are set to meet next week.</span></p> <p><span>Beware the JOLTS survey up later today and beware any market attempts at a takeaway, given the cavalcade of more important data and the FOMC meeting to follow.</span></p> <p><span><strong><span>Chart: EURAUD<br /> </span></strong></span><span >Interesting to see the hard reversal in EURAUD over the last week, in part as the EURUSD move above 1.1000 has been contained and capped the euro broadly, but also as the RBA&rsquo;s surprise hike helps push back against the notion that the ECB and RBA rates were headed toward parity. More on the RBA&rsquo;s hike below, but the important point here is that EURAUD has once again found resistance in the 1.6800 area, one that capped the action in the exchange rate both before and after the crazy pandemic-inspired spike of early 2020. This high-momentum sell-off will make it tough to turn the chart back higher again. This may be either peak EUR or nadir AUD. For the action to continue lower sooner rather than later in EURAUD, we will likely need mounting evidence that the ECB is being marked for too much further tightening relative to its peers (EUR negative but perhaps unlikely in the short term?) or for an AUD-positive revival in the Australia-centric commodities complex (iron ore, copper, etc.) on, for example, new signs that the China re-opening story is coming into full swing.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/02_05_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span>The RBA hiked 25 basis points when the market was expecting almost nothing (though nearly a third of economists surveyed by Bloomberg predicted the move). The statement guided on the potential for further tightening, though the market remains reluctant to price much more. The move makes sense, given the revival of home prices across Australia. As well, it may also have been about Governor Lowe pushing back against the RBA&rsquo;s outlier status relative to global peers in terms of the RBA&rsquo;s cash target rate level and all of the criticism that has been heaped on his management style. He is leaving in September and in July, the RBA is set for a massive overhaul. </span></p> <p><span>There wasn&rsquo;t enough in this morning&rsquo;s Eurozone Flash April CPI readings (core dipping to 5.6% YoY as expected and vs. the cycle high of 5.7% in March) nor in the euro area bank lending survey data to excite anticipation of a larger rate hike at the Thursday ECB meeting (28 basis points priced).</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The JPY remains the weakling after extending sharply lower in the rise in yields yesterday, but has fought back some intraday (as yields have also dropped back a bit). The US dollar remains neither here nor there -hopefully we have a signal by the Friday close. The euro losing altitude fast &ndash; just consolidation ahead of ECB? AUD backed up sharply on RBA as noted above.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/02_05_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Regarding JPY, the most important pair is of course USDJPY, with the sub-138.00 area highs from early March the key focus. EURSEK is making a bid at a new downtrend &ndash; needs to stick post-FOMC and post-ECB for more validity.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/may/02_05_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1400 &ndash; US Mar. JOLTS Job Openings </span></li> <li><span>1400 &ndash; US Mar. Factory Orders </span></li> <li><span>2245 &ndash; New Zealand Q1 Employment/Wage data </span></li> <li><span>0130 &ndash; Australia Mar. Retail Sales</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 02 May 2023 11:50:00 Z2023-09-23T09:40:59Z{958F9902-2DE4-4E82-8D3F-4778F4BE6A27}https://www.home.saxo/en-hk/content/articles/forex/fx-update-boj-tanks-jpy-usd-firms-broadly-28042023John Hardyproduct-forexHighlighted articlesFX Update: BoJ tanks JPY. USD firms broadly.<div class="article-excerpt">The USD firmer on a steep USDJPY rally as the dovish BoJ tanked the JPY, but also on hot core inflation data in the Q1 US GDP estimate yesterday. A key few days ahead for the greenback through next Wednesday’s FOMC meeting.</div><div class="article-rte"><div class="rte--output"><p><span>Today's&nbsp;<a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/stocks-make-fresh-bullish-bid-on-earnings-boj-to-take-its-sweet-time/" target="_blank">Saxo Market Call</a>&nbsp;podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-28-2023-28042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> BoJ surprises very dovish, tanks JPY, but...</span></strong></span></p> <p><span>The Bank of Japan surprised on the dovish side in announcing that it would indulge in a 12-18 month policy review, seemingly not convinced that inflation will sustain at 2% in the longer run as it expects inflation to fall back later this year and press conference comments seem to make it clear that they would like at next spring&rsquo;s wage negotiation rounds before they are convinced. A <a rel="noopener noreferrer" href="https://www.home.saxo/en/content/articles/macro/macro-insights-bank-of-japans-policy-tweaks--not-yet-28042023" target="_blank">thorough run-down of the BoJ meeting and policy considerations</a> from here is out this morning from my colleague Charu Chanana. All of the comments and messages from this meeting are a real mixed bag. Discussing it with Charu, she convinced me that we shouldn&rsquo;t over-stress the time-line of the policy review and that it is important to consider as well the comments noting the negative &ldquo;side effects&rdquo; (like losing control of the BoJ balance sheet&hellip;) of the current YCC policy when it is under strain. The JPY move lower today looks very aggressive, and may run out of steam very quickly if yields stay frozen in their recent ranges &ndash; more below in USDJPY chart discussion.</span></p> <p><span><strong><span>Chart: USDJPY<br /> </span></strong></span><span >USDJPY ripped higher on the very dovish Bank of Japan guidance and its heel-dragging on signaling any normalization of policy, even if it left itself some room for tweaking policy. The move today was very aggressive and the next focus is on the 200-day moving average, currently near 137.00 which was clearly the resistance on the last pull higher back in early March before the US banking turmoil shocked rates back lower. If US yields break out of their range to the upside and the market grows increasingly uncomfortable with its expectations for Fed rate cuts later this year, we could see a significant follow through higher still, but by the same token, as noted above, it may not build much more steam if yields stay rangebound, allowing the Bank of Japan to maintain its very cautious strategy.</span><span >&nbsp;</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/28_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>US debt ceiling &ndash; still important, but timeline extended.</span></strong></span><span> Very shortly after my Wednesday update, the Republican House leadership announced that the votes were there for an altered version of the spending bill that would lift the debt ceiling. This spooked markets and saw US treasuries rallying, as it shows strong Republican solidarity in the House, aggravating the risks that the debt ceiling issue goes down to the wire. (Again, the Democrat-controlled Senate and Biden will never pass the bill that the House Republican majority just passed) But later on the same day it also emerged that stronger than expected tax revenues over the last week as tax payments from this month roll in mean that crunch time has move back to July rather than the early June time frame. In short, while nothing is resolved and the issue could yet produce market instability, the immediacy of the problems has faded and we&rsquo;ll have to see how the Biden administration proceeds from here after declaring no willingness to even debate the issue as the White House wants a lifting of the ceiling with no conditions. The <a rel="noopener noreferrer" href="https://www.politico.com/news/2023/04/27/white-house-regroups-mccarthy-debt-ceiling-success-00094273" target="_blank">latest Politico article</a> on the subject suggests that the Democratic tactic will be to attack House members that supported the bill on holding the country hostage and for some of the bill&rsquo;s controversial contents that would defund popular programs.</span></p> <p><span><strong><span>NOK gets another drubbing on Norges Bank FX purchase announcement for May.</span></strong></span><span> The Norwegian central bank seems to be calibrating its daily NOK sales poorly as its announcement of dropping the rate of sales (meant to offset incoming FX from oil and gas revenues) to NOK 1.4B per day from 1.5B. Something needs to change structurally in Norway if it wants a more rational FX policy in a time of inflation &ndash; yes, it can recalibrate NOK sales to get them at the right level relative to incoming oil and gas revenues (these ramped as high as NOK 4 billion per day during the high gas prices last year, but the reductions in purchase have apparently not caught up with the reality on the ground, judging from the market reaction. A more structural solution would be a deeper domestic bond market created by a Norwegian government that funds deficits with new debt. The Norges Bank should also run a slightly tighter ship (if this latest sprint higher holds, could they consider a larger hike next week?). EURNOK is working into nosebleed territory &ndash; could certainly go higher still, but if the right policy decision is hinted at, much less made, NOK could see an enormous course correction. Three-month and 6-month EURNOK volatility suggest few risks of such volatility lie over the horizon. Medium to longer term NOK upside via options is a strategy worth consideration.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The JPY jolted lower on the dovish BoJ today, but the move needs support from global bond yields rising if something bigger is to build in the weak JPY trend. Yields are currently rangebound (and lower today in Europe on Germany&rsquo;s soft -0.1% work-day-adjusted QoQ GDP print vs. +0.3% expected). The EUR is struggling a bit today, but would need a sharper sell-off to indicate a challenge of the uptrend, while the USD is firm against the weakling commodity dollars and hopeless NOK.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/28_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >EURUSD and the separation from the 1.1000 area are critical for the trend there, and is the USDCHF downtrend exhausting itself now? AUDUSD has challenged close to range lows today (0.6565).</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/28_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1200 &ndash; Germany Flash Apr. CPI </span></li> <li><span>1230 &ndash; Canada Feb. GDP </span></li> <li><span>1230 &ndash; US Mar. PCE Inflation </span></li> <li><span>1400 &ndash; US Apr. Final University of Michigan Sentiment</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 28 Apr 2023 12:00:00 Z2023-09-22T22:30:14Z{16EA9D4C-42C2-4317-8B97-10F4D28745E8}https://www.home.saxo/en-hk/content/articles/forex/fx-update-us-debt-ceiling-concerns-pressurizing-26042023John Hardyproduct-forexHighlighted articlesFX Update: US debt ceiling concerns pressurizing?<div class="article-excerpt">The USD roller coaster ride continues as the debt ceiling issue may have the euro and yen playing safe haven rolls here. Riksbank’s dovish guidance takes SEK down a notch.</div><div class="article-rte"><div class="rte--output"><p><span>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/choppy-sentiment-shifts-as-megacaps-report-earnings/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-26-2023-26042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> Debt ceiling issue is applying the pressure</span></strong></span></p> <p><span>I said in a piece last week that there would be &ldquo;difficult terrain&rdquo; ahead for the US dollar on the debt ceiling issue and that may be what we are seeing playing out this week on the zany price action in some USD pairs over the last couple of sessions. While the US dollar had a one off rally yesterday that was arguably logical on broadly weakening risk sentiment, the huge backup today in EURUSD and sell-off in USDJPY while AUD and other small G10 currencies are as weak or even weaker than the greenback suggests safe haven seeking due to a debt ceiling focus. With expectations nil for any significant shift from the BoJ this Friday, the JPY has not served consistently as a safe haven, though the two-day plunge in global bond yields was too significant to ignore and the yen has picked up some of its old safe haven shine and could continue to do so if treasuries and global sovereign debt remains bid here. </span></p> <p><span>New developments on the US debt ceiling are minimal, with Politico only reporting yesterday that House Republican leadership still supposedly wants to move forward with a vote on its bill, but not having the Republican votes to get it passed. A failed vote is probably a step in the right direction for reaching an eventual solution as it suggests Republicans don&rsquo;t have the necessary solidarity to take this issue to the wire, but how big would that step be if a vote fails? Could they make a few changes to and re-vote and pass the bill or will House Democrats move quickly to cobble something together with a few Republican defectors? It is entirely unclear. Also, could the debt ceiling have the Fed on pause next week? Odds are slipping for a rate hike next week, if still at greater than 75%. Suspect the USD weakness may stay isolated in the safe haven crosses if risk sentiment suffers broadly. </span></p> <p><span><strong><span>Chart: EURAUD<br /> </span></strong></span><span >The Aussie has been on the defensive this week as softer than anticipated Q1 CPI from Australia supported the dovish RBA guidance and on the China reopening story failing to reignite a bull move in the key commodities that Australia exports. Copper, for example, got a drubbing yesterday. Meanwhile, the euro&rsquo;s steep climb of late may be getting extra fuel from the US debt ceiling concerns, which are tough to measure directly. Ironically, strong concerns lead to significant safe haven buying of US treasuries as everyone &ldquo;knows&rdquo; that the US will never default, while things like CDS contracts on a US default suggest significant concern, but are too tiny market to represent anything more than lottery ticket purchases by punters. Regardless of the cause, EURAUD has gone nearly parabolic here and is challenging the late 2020 high, which is near 1.6830.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/26_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span>The Riksbank hiked 50 basis points today as most expected, but there were two dissenters among the six voters and the guidance was only for 25 basis points of further tightening through September (a hike in either June or September). Swedish 2-year yields dropped around 12 basis points and SEK sold off sharply, although EURSEK remained capped below the cycle highs of 11.48.</span></p> <p><span>In yesterday&rsquo;s update I suggested that incoming US earnings reports could prove as interesting in the coming couple of weeks as any of the incoming data, particularly the less-reliable soft survey data that has been so confusing of late. On that note, while yesterday&rsquo;s Microsoft and Alphabet earnings got a rather positive spin despite questionable top-line growth, the UPS earnings miss was certainly a flashing red light. The stock plunged some 10% after reporting weak margins and weak parcel demand while guiding for slowing retail volumes this year. Yes, there has been a post-pandemic slump in the movement of physical goods as the economy switched back to its normal level of services activity, but we should be working into the clear of those effects soon if not already. Other interesting companies reporting this week with operations in the real and services economy include eBay today, Amazon and Mondelez tomorrow. Visa reported strong results yesterday, particularly noting the travel side of activity (wouldn&rsquo;t that be lagging as larger holidays are planned in advance?). Mastercard reports tomorrow. </span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The broader picture continues to make clear that we have commodity dollar and NOK weakness, a neutral USD and a particularly strong EUR and CHF, though do note the JPY momentum shift ahead of Friday&rsquo;s BoJ meeting.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/26_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >An odd move in EURCHF today &ndash; was that intervention? With USDCHF moving so fast and furious southward, it wouldn&rsquo;t be a surprise if the SNB would like to tap the brakes on the franc&rsquo;s ascent of late. A growing number of Aussie crosses are struggling for air here &ndash; note AUDJPY and then AUDNZD now back on the verge of flipping back lower.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/26_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1700 &ndash; US 5-year Treasury Auction </span></li> <li><span>0100 &ndash; New Zealand Apr. ANZ Business Survey</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 26 Apr 2023 13:15:00 Z2023-09-22T21:27:58Z{A05CFF82-1B85-47A0-AD96-0BA090FDBECE}https://www.home.saxo/en-hk/content/articles/forex/fx-update-eyeing-boj-friday-weak-aud-ahead-of-au-cpi-25042023John Hardyproduct-forexHighlighted articlesFX Update: Eyeing BoJ Friday. Weak AUD ahead of AU CPI.<div class="article-excerpt">JPY picking up strength today, more likely on lower long bond yields than on any strong anticipation of policy drama at Friday’s Bank of Japan meeting.</div><div class="article-rte"><div class="rte--output"><p><span>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/if-you-re-not-confused-you-re-not-paying-attention/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-25-2023-25042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> BoJ preview. Weak AUD on commodity focus ahead of CPI. Weak USD is more &ldquo;strong Euro&rdquo;</span></strong></span></p> <p><span>The JPY is picking up a bid today as global long yields slumped sharply since yesterday. That is far more likely the reason for the JPY rebound as JPY shorts take profit ahead of this Friday&rsquo;s Bank of Japan meeting rather than any notion or anticipation that new Governor Kazuo Ueda is about to uncork a policy surprise on the market. The setup is so unlike the arrival of Kuroda back in 2013, when the anticipation of shock and awe was warranted and even encouraged. Ueda is expected to avoid drama at this meeting with all signs and rhetoric pointing to continuity for now, even as we should all expect policy tweaks if global bond yields pull back toward cycle highs. The market isn&rsquo;t particularly bothered here, with one-week JPY volatility actually far lower than it was before any meeting over the last 12 months (currently 11.4% vs. over 15% for the meetings since September). The irony would be if Ueda delivers nothing and yet the JPY strengthens sharply anyway because bond yields are continuing to drop. Favourites for positioning for a JPY rebound include GBPJPY and USDJPY &ndash; perhaps via long put 1-month spreads ahead of the meeting.</span></p> <p><span>Little to update on the US debt ceiling issue. The US 30-year yield plunging some 14 basis points since the Friday close doesn&rsquo;t suggest any widespread loss of confidence in US credit-worthiness even as we note odd pricing of some very short-dated US T-bills that suggest nervousness on parts of the curve where bills will be maturing and need rolling close to the anticipated time of trouble as early as early June. A 6-month T-bill auction yesterday raised no eyebrows. The Republican majority House whip claims that a vote will go ahead &ldquo;this week&rdquo; on the existing Republican bill, even as a Politico story suggests that there could be a dozen or more Republican representatives that are against the bill. The Republican majority is so narrow at 222-213 that losing anything over four votes will mean the bill doesn&rsquo;t pass. That may raise the odds that the Democrats can find a few votes to cross the aisle and at least get a stop-gap bill done until next year. If the bill passes, the gauntlet will have been lowered and the risks of a mishap rise.</span></p> <p><span><strong><span>Chart: AUDUSD<br /> </span></strong></span><span >The Aussie continues to trade heavily ahead of the Q1 CPI data in very early Asian hours tonight as the Philip Lowe RBA has soft-pedaled the rate hike cycle relative to most global peers and as we face the remarkable forward expectations that the ECB policy rate will nearly be at parity with the RBA&rsquo;s by late this year. The lack of market expression of the &ldquo;China re-opening&rdquo; story, at least in terms of base metals prices also continues to weigh on the Aussie. Iron ore has lurched into an ugly slide recently and copper prices extended a more than week-long slide overnight. The US dollar has been sufficiently weak as well of late to prevent a meltdown in AUDUSD, but if the commodity support for the Aussie continues to erode and we get an in-line or weaker CPI report out of Australia, we could get a test of the range lows around a figure away at 0.6565, which could extend the focus lower, possibly all the way to the 2022 lows below 0.6200. It is worth noting that the RBA policy outlook faces considerable uncertainty beyond July, which will bring a new structure with a new monetary policy board that would dilute the Governor&rsquo;s authority, together with Philip Lowe&rsquo;s exit in September. But caution required here &ndash; this has been a choppy and rangebound chart &ndash; there is no real momentum unless we quickly head sub 0.6600 or above 0.6800.</span><span >&nbsp;</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/25_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span>The US dollar has firmed a bit from new lows versus the Euro today, which was partially buoyed by fresh ECB comments on hiking rates next Thursday, although the JPY has rallied the most today in Europe as discussed above. After several weeks of mostly very quiet price action, USDCNH has rallied sharply today &ndash; more than one day of that kind of move is a story that will need updating.</span></p> <p><span>Yesterday saw another very weak regional manufacturing survey, this time the Dallas Fed&rsquo;s manufacturing survey number, which put in almost dire reading of -23.4, the weakest reading since the financial crisis if we ignore the few pandemic break-out months of 2020. This echoed a similarly weak -31.3 reading in the Philly Fed survey. As we discussed in this morning&rsquo;s Saxo Market Call podcast, these data points are confusing and don&rsquo;t jibe at all with the improving trend in the S&amp;P Global PMI numbers. We&rsquo;ll get a couple of regional Fed services sector surveys today &ndash; also from the Philly and Dallas Feds &ndash; but confidence in this survey data is entirely lacking when the results are conflicting and as long as the labor market data remains tight. Part of the problem is likely in the wild swings in economy from the &ldquo;pig through a python&rdquo; pattern that wildly impacted the demand side of the economy and inflation, particularly on the manufacturing side from late 2020 and through much of 2021, only to be followed by a hangover on the readjustment to the trend. Corporate earnings reports in the coming couple of weeks might prove a helpful measure. One data point yesterday was US consumer staple giant Procter and Gamble reporting 3.5% YoY growth in revenue and only guiding for 0-4% revenue growth for the coming year with core inflation still running 4.5-5.5%, depending on the measure.</span></p> <p><span>The last data points of note from the US before next Wednesday&rsquo;s FOMC meeting include today&rsquo; April Consumer Confidence survey, Thursday&rsquo;s weekly initial jobless claims, the Friday Mar. PCE Inflation report and the ISM&rsquo;s &ndash; again, more surveys &ndash; next Monday for Manufacturing and Wednesday for Services. The March JOLTS job openings survey is up next Tuesday as well after raising eyebrows in dropping sharply in February.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The Swiss franc continues to ride high, even outpacing the strong Euro, as the FX Board makes it clear that the USD is neither here nor there, broadly speaking, while the commodity dollars, NOK and CNH are the weakest links.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/25_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >AUDUSD is now tilting lower &ndash; but do note discussion above that it is still very much stuck in the range here. USDCAD flipped to a positive trend yesterday. Elsewhere, note sure that I can recall a trend like EURNOK&rsquo;s reaching 101 days without a cross-over.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/25_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US Apr. Philadelphia Fed Non-manufacturing survey </span></li> <li><span>1300 &ndash; US Feb. S&amp;P CoreLogic Home Price Index </span></li> <li><span>1400 &ndash; US Mar. New Home Sales </span></li> <li><span>1400 &ndash; US Apr. Consumer Confidence </span></li> <li><span>1400 &ndash; US Apr. Richmond Fed Manufacturing </span></li> <li><span>1430 &ndash; US Apr. Dallas Fed Services Activity </span></li> <li><span>1700 &ndash; US Treasury to auction 2-year notes </span></li> <li><span>2245 &ndash; New Zealand Mar. Trade Balance </span></li> <li><span>0130 &ndash; Australia Q1 CPI</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 25 Apr 2023 10:50:00 Z2023-09-23T06:37:05Z{12BC96CF-5573-43BE-A6EE-FBFD080520F3}https://www.home.saxo/en-hk/content/articles/forex/fx-update-difficult-terrain-for-usd-ahead-on-us-debt-ceiling-crunch-time-20042023John Hardyproduct-forexHighlighted articlesFX Update: Difficult terrain for USD ahead on US debt ceiling crunch time.<div class="article-excerpt">The greenback rebounded strongly on Friday together with US treasury yields, upsetting the apple cart for USD bears as it erased much of the recent USD sell-off. What next?</div><div class="article-rte"><div class="rte--output"><p><span>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/time-to-buy-some-downside-insurance-big-weather-shift-coming/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-20-2023-20042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> A difficult terrain ahead as debt ceiling crunch time approaches. RBA set for big structural changes. </span></strong></span></p> <p><span>The House Republicans came up with a complete non-starter of a budget bill that Senate Democrats will never pass, much less the veto-holding Biden administration. The bill looks to raise the debt limit by $1.5 trillion and reduce some $130 billion in spending next year, including axing many of the Biden administration&rsquo;s hallmark initiatives, like canceling student debt and some of the climate- related programs (although details can be hammered out later). House speaker McCarthy claimed that the bill could save the government $4.5 trillion over the next decade. The House Republicans would have to show extreme discipline to get it passed even in the house as it can&rsquo;t pass if they lose more than four votes from 222 possible. </span></p> <p><span>What to do with the US dollar then? On the one hand, liquidity headwinds lie ahead and threaten risk sentiment headwinds and possibly USD upside. These come from the Fed continuing its QT while the US Treasury is set to drive a net liquidity drain from here. (Backgrounder: US treasury has been providing extensive liquidity as it drained hundreds of billions of USD from its account at the Fed. That account has now dwindled to about as low as it can go now, stopping that source of liquidity for now. And once the debt limit issue is cleared, the Treasury will set about rebuilding the account by hundreds of billions, driving even tighter liquidity.) But if the Biden administration and Congressional Republicans play a game of brinksmanship, it&rsquo;s hard to imagine that process as a USD positive and will keep the Fed in a cautious stance. The situation could come to a head as soon as early June because of weaker than expected tax revenues, while otherwise late July has been considered the more likely pinch point at which time the US Treasury runs out of room with its special maneuvers. If sanity prevails and a handful of Republican House members cross the line, the issue can be avoided until possibly 2025, if the &ldquo;Problem Solvers&rdquo; caucus discussed <a rel="noopener noreferrer" href="https://www.washingtonpost.com/politics/2023/04/19/house-gop-debt-ceiling-scramble/" target="_blank">in this article</a> can get an alternative passed.</span></p> <p><span>Sterling failed to get much out of yesterday&rsquo;s hot CPI print, even as 2-year UK swap rates jumped 15 basis points on the news. GBPUSD couldn&rsquo;t convincingly challenge the 1.2500 resistance again despite the yield spread widening to new extremes for the cycle. At present, the market is pricing BoE rates to be 25 basis points above Fed rates by year end. This is already difficult to swallow, much less any significant extension of the difference. Driving GBPUSD more than a figure or so higher at this point in the cycle would likely require some major US debt-limit related incident requiring eventual Fed liquidity injection. Expecting sterling to ramp higher because the BoE is finally getting more inflation-fighting religion is far less likely. EURGBP is back in the middle of the range it has traded within all year &ndash; still a non-story, though upside is likely the side of least resistance. GBPNOK has my contrarian warning lights flashing&hellip;</span></p> <p><span><strong><span>Chart: AUDNZD<br /> </span></strong></span><span >While we await for something to give in either direction in the major USD pairs, the relative merits of AUD and NZD are worth consideration here after the kiwi was knocked lower in the wake of a lower than expected inflation number for Q1 at 1.2% QoQ and 6.7% YoY vs. 1.5%/6.9% expected, respectively and vs. 7.2% the prior quarter. This capped NZ yields and lowers the odds of a May rate hike from the RBNZ. From here, if inflation reheats, the RBA will have more work to do than the RBNZ to fight inflation. Meanwhile, an economic slowdown scenario would leave. With China&rsquo;s economic activity picking up is normally an added potential benefit for the Aussie, although the key commodity prices coincident to that story are not offering much support to that story. See below for more on the RBA, which is set for a changed structure and meeting frequency that brings it into line with global peers. Next steps for firmly shifting focus back to the upside would be clearing the 200-day moving average and 1.1000 area.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/20_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Big changes ahead for the RBA</span></strong></span><span>: Following an independent review of the RBA ordered by the Australian government, sweeping recommendations for change were handed down today. Among these are that the RBA should create a new monetary policy board and meet less frequently (eight meetings per year, down from eleven), in better alignment with international counterparts. These were just some of the recommendations and were &ldquo;welcomed&rdquo; by the RBA. The report criticized the RBA&rsquo;s board composition, which includes one economist and six independent directors who are mainly from business. The recommendations include a dilution of the Governor&rsquo;s powers as more economist expertise would be brought onto the board. The changes could start from July 2024 and see the RBA governor speaking at a press conference after policy meetings. Current Governor Lowe&rsquo;s term expires in September.</span></p> <p><span><strong><span>The Fed Beige Book</span></strong></span><span> released late yesterday suggests the US economy is in a holding pattern, with Fed observers claiming that consumer spending was flat to down slightly, while wage growth showed som moderation, while increasing slack in the labor market (evident in the recent rise in jobless claims) was also noted. A moderation of price increases was noted, while &ldquo;several districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity&rdquo;. The banks reporting thus far show no general patterns of suffering deposit flight, though they may have compete more for retaining deposits than previously, and this will tighten the screws on overall credit growth.</span></p> <p><span><strong><span>Today&rsquo;s Philly Fed worth watching</span></strong></span><span>: after the stunning April Empire Manufacturing survey, which came in at a stunning +10.8 versus expectations for &ndash;18 and &ndash;24.6 in March, it is worth watching today&rsquo;s Philly Fed. More positive surprises in the regional surveys leading up to tomorrow&rsquo;s preliminary S&amp;P Global Apr. US Manufacturing PMI and the BLM&rsquo;s ISM Manufacturing survey the week after next might indicate something is afoot in the US manufacturing sector. If so, is it the beginning of a turnaround due to huge announced investments in manufacturing that have been encouraged by the most sweeping US industrial policy initiatives since the second World War, including the Inflation Reduction Act and the CHIPS and Science Act? The setup for today&rsquo;s April Philadelphia Fed survey is similar to the Empire number, with expectations for a reading of &ndash;19.3 after &ndash;23.2 in March. If the number comes in as weak as expected, then there is no corroboration of the Empire survey number, but if it swings into positive territory after the deepening negative prints in the last several months, it may point to a major reversal in the outlook for US manufacturing. </span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >NZD and especially NOK weakness worth noting, but CAD has also lost a lot of altitude here over the last couple of sessions as oil prices corrected lower. On the plus side, the Swiss franc continues its serene strength.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/20_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Note that EURCHF is approaching a pivot low near 0.9800, the low area since the zany swings during the March banking turmoil. USDCAD is trying to cement the reversal of the attempt through the 1.3400 area and 200-day moving average. Elsewhere, my contrarian pick for the next three months has to be GBPNOK, which just look so absurdly extended.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/20_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US Weekly Initial Jobless Claims </span></li> <li><span>1230 &ndash; US Philadelphia Fed Survey </span></li> <li><span>1400 &ndash; US Mar. Existing Home Sales </span></li> <li><span>1400 &ndash; Eurozone Apr. Flash Consumer Confidence </span></li> <li><span>1530 &ndash; Bank of Canada&rsquo;s Macklem and Rogers to epsak&nbsp; </span></li> <li><span>1600 &ndash; US Fed&rsquo;s Waller (Voter) to speak </span></li> <li><span>1620 &ndash; US Fed&rsquo;s Mester (Non-voter) to speak </span></li> <li><span>1900 &ndash; US Fed&rsquo;s Bowman and Logan (both voters) in Fed Listens event </span></li> <li><span>2015 &ndash; ECB's Schnabel to speak </span></li> <li><span>2301 &ndash; UK Mar. GfK Consumer Confidence </span></li> <li><span>2330 &ndash; Japan National CPI </span></li> <li><span>2345 &ndash; US Fed&rsquo;s Harker (Voter 2023) to speak on economic outlook</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Thu, 20 Apr 2023 11:40:00 Z2023-09-23T09:57:51Z{E28AF62E-0787-4EE8-B585-6A7F0594A38C}https://www.home.saxo/en-hk/content/articles/forex/fx-update-usd-finds-support-on-resurgent-treasury-yields-17042023John Hardyproduct-forexHighlighted articlesFX Update: USD finds support on resurgent treasury yields.<div class="article-excerpt">The greenback rebounded strongly on Friday together with US treasury yields, upsetting the apple cart for USD bears as it erased much of the recent USD sell-off. What next?</div><div class="article-rte"><div class="rte--output"><p><span>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/treasury-yields-jump-usd-fights-back-as-earnings-season-hits-full-stride-this-week/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-17-2023-17042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading Focus: USD jumped as US treasury yields backed up, with the incoming data a weak justification for the move. GBP on its back foot ahead of CPI data. Where are we meant to focus this week?</span></strong></span></p> <p><span>The US treasury market sold off heavily on the US Retail Sales report Friday, suggesting that the move had something to do with that report. But there was little in the numbers to justify an almost 15 basis point jump in 2-year yields by the end of the day, with yields also rising all along the curve. The Fed&rsquo;s Christopher Waller (a voter as Board of Governors member) was out with hawkish rhetoric Friday as well, but most of the reaction was over the indifferent retail sales data. By the end of the day, the market had bumped its odds higher for a rate hike at the May 3 FOMC meeting and slightly more than fully priced a 25 basis point higher rate through the June FOMC meeting.</span></p> <p><span>The USD bullish view here would build on the idea that the market was far too quick to discount the Fed forward rate curve so extensively in the panic that ensued from the Silicon Valley Bank collapse and other banking sector turmoil of late. Indeed, the latest weekly US commercial bank deposit data saw deposits rising a chunky $60B through April 5. Other evidence that bears close watching this week is what the medium and smaller US regional banks are reporting in their earnings calls for Q1 and the guidance they provide. A couple of these banks (including M&amp;T) are reporting today and a full picture of the scale of the pressure on banks should be available by the end of this week as a flurry are reporting Tuesday-Thursday. Otherwise, it is a thin week on the US data calendar (judging from Friday&rsquo;s action, data seems just an excuse here anyway) outside of housing related numbers like today&rsquo;s NAHB survey number (probably stabilizing further after February rebound?) and regional manufacturing surveys.</span></p> <p><span><strong><span>Chart: GBPUSD<br /> </span></strong></span><span >GBPUSD reversed hard on Friday on a combination of both sudden new USD strength and an extension of recent sterling weakness, perhaps as the Bank of England is a known dragger-of-its-heels on tightening policy further and as it maintains a far more aggressive forecast on impending disinflation. The UK March CPI report is up on Wednesday. The move erases the entire attempt at the prior 1.2525 pivot high from earlier this month and the prior major double top in the 1.2445 is also a consideration. Still, given the scale of the rally off the sub-1.1900 lows, we would arguably have to reverse down through the 61.8% retracement of the large up-wave around 1.2087 to firmly reset the focus lower. Still, the high momentum capping of the price action has set the bar quite high for GBPUSD bulls locally.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/17_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The USD reversal not yet picking up yet in the overall trend picture, while the JPY weakness deepens and the former sterling strength has now entirely evaporated (note that GBP has the strongest directional two-day momentum reading of the G10 currencies.) CHF could prove vulnerable if yields continue to rise.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/17_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Note the extension of the AUDNZD move higher ahead of the quarterly NZ CPI release on Thursday &ndash; critical for that pair. NZDUSD also looks heavy on range support. </span><span ></span><span >AUDUSD never got anything going to the upside and is thoroughly stuck here between 0.6600 and 0.6800. And I am not sure I can recall a trend surviving no setbacks for 95 days, but that is currently what this EURNOK rally has achieved.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/17_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1200 &ndash; Poland Mar. CPI Core </span></li> <li><span>1230 &ndash; US Apr. Empire Manufacturing </span></li> <li><span>1300 &ndash; UK Bank of England&rsquo;s Cunliffe to speak </span></li> <li><span>1400 &ndash; US Apr. NAHB Housing Market Index </span></li> <li><span>1500 &ndash; ECB President Lagarde to speak </span></li> <li><span>0200 &ndash; China Q1 GDP </span></li> <li><span>0200 &ndash; China Mar. Industrial Production&nbsp; </span></li> <li><span>0200 &ndash; China Mar. Retail Sales</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 17 Apr 2023 11:10:00 Z2023-09-23T17:03:52Z{D276950A-ADCF-44B1-BACF-A84A7FCA54A8}https://www.home.saxo/en-hk/content/articles/forex/fx-update-usd-breaks-down-if-not-yet-broadly-14042023John Hardyproduct-forexHighlighted articlesFX Update: USD breaks down, if not yet broadly.<div class="article-excerpt">The USD has broken down against four of the G10 currencies, with EUR and CHF leading the pack. AUDUSD is not there yet, as commodities are a key coincident indicator there.</div><div class="article-rte"><div class="rte--output"><p><span>Our <a rel="noopener noreferrer" href="https://www.home.saxo/insights/news-and-research/thought-leadership/quarterly-outlook" target="_blank">Q2 Outlook</a>, titled The Fragmentation Game is now out.<br /> Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/market-in-goldilocks-mode-with-massive-earnings-week-ahead/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-14-2023-14042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> USD rolls over to new lows as benign data for the inflation outlook keeps sentiment supported. The broad euro strength getting stretched.</span></strong></span></p> <p><span>The &ldquo;just right&rdquo; US data for a disinflation out yesterday helped keep US treasury yields neutral and allow risk sentiment to remain bid ahead of an important earnings season that is set to kick off today (have a listen to the extensive preview in today&rsquo;s Saxo Market Call podcast). Both core and especially headline US March PPI data were softer than expected and the jobless claims remain in the new range between 225 and 245k, suggesting a less tight, but still strong US labour market. Today we have a look at March US Retail Sales, with further relative weakness after the huge January surge in sales. </span></p> <p><span>The reaction pattern after the US data was telling, as the initial move lower in yields saw JPY reacting the most vigorously, but as yields reverted to unchanged, the JPY rally faded again and instead the recently quiet and rather weak Aussie roared to live, extending its rally to more than a figure off the days lows in AUDUSD and testing the important 0.6800 level on the AUDUSD chart. This coincides with copper rallying clear of resistance. Copper is a key proxy for the argument that Chinese growth set to accelerate and that the global electrification- and alternative energy push, which is very copper intensive. Alas, the copper move is wilting as of this writing, so stay tuned there. Anyone hoping for an Aussie rally extension needs some support from the metals/commodities space as long as the RBA is in pause mode. The EURUSD rally extension is discussed with the chart below. GBPUSD looks a bit less convincing as EURGBP has rallied sharply and outside of EURCHF, the euro strength is getting rather stretched here. Next week, Europe reports its flash April Manufacturing and Services PMI on Friday.</span></p> <p><span><strong><span>Chart: EURUSD<br /> </span></strong></span><span >EURUSD broke above the higher water mark of the year at 1.1054 and traded to a new 12-month high into this morning&rsquo;s session, driven in part by the policy divergence story, as the Fed is priced to reach peak rates in May/Jun or possibly already to have peaked, while another 75 basis points of further tightening is priced for the ECB through Sep/Oct with eventual cuts not seen likely until early next year (Fed already priced at 75 basis points below the current policy rate by the January 2024 FOMC meeting). It&rsquo;s possible that EURUSD can wring more upside from this source, but hard to see a meaningful further widening of yield spreads when the market is pricing the Fed and ECB to have the same policy rate around the middle of the next year. Technically, the next objective is perhaps the 1.1275 area, which is the 61.8% retracement of the entire rally off the down-wave from the post-pandemic highs to the sub-0.9600 lows last year. Bears don&rsquo;t have a case here unless we sharply reverse this latest up-move and close at least below 1.1000 to start.</span></p> &nbsp; <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/14_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span>As I am about to publish, I see the <a rel="noopener noreferrer" href="https://www.bloomberg.com/news/articles/2023-04-13/global-bond-bulls-eye-signals-from-japan-s-big-debt-investors?srnd=premium-asia&amp;sref=FAeeuM97" target="_blank">story from Bloomberg</a> discussing Japanese life insurers getting set to make their investment decisions for the year ahead &ndash; a massive risk for JPY flows. Take note! </span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >The broad sterling underperformance of the last few session is notable and worth watching for further developments. It&rsquo;s certainly not driven by anything rates related, and the BoE&rsquo;s Chief Economist Pill was even out talking up the potential for a &ldquo;positive demand shock&rdquo; in the UK economy yesterday, driven by low unemployment. Elsewhere, the franc leads the pack as the CHF tracks the strong euro with the cherry on top of soaring gold prices (SNB maintains large gold reserves).</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/14_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Many USD pairs at key range levels, including USDSEK, NZDUSD and AUDUSD, which have yet to break meaningful levels. AUDUSD is perhaps the key one to watch as noted above.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/14_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1230 &ndash; Canada Feb. Manufacturing Sales </span></li> <li><span>1230 &ndash; US Fed&rsquo;s Goolsbee (Voter 2023) to speak </span></li> <li><span>1230 &ndash; US Mar. Retail Sales </span></li> <li><span>1245 &ndash; US Fed&rsquo;s Waller (Voter) to speak </span></li> <li><span>1315 &ndash; US Mar. Industrial Production/Capacity Utilization </span></li> <li><span>1400 &ndash; US Apr. Preliminary University of Michigan Sentiment&nbsp; </span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Fri, 14 Apr 2023 09:45:00 Z2023-09-23T09:28:03Z{8F46907B-65FA-4173-937F-BFB12B78DAD6}https://www.home.saxo/en-hk/content/articles/forex/fx-update-longer-term-observations-beyond-us-cpi-distraction-12042023John Hardyproduct-forexHighlighted articlesFX Update: Longer term observations beyond US CPI distraction.<div class="article-excerpt">Markets are hoping that the US March CPI release today can sustain a narrative and blast us out of recent ranges. Failing that, we consider some longer term situations of interest. </div><div class="article-rte"><div class="rte--output"><p><span>Our <a rel="noopener noreferrer" href="https://www.home.saxo/insights/news-and-research/thought-leadership/quarterly-outlook" target="_blank">Q2 Outlook</a>, titled The Fragmentation Game is now out.<br /> Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/another-0dte-frenzy-in-wait-on-cpi/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-12-2023-12042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> &nbsp; <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> USD primed to react to March US CPI release today, market feels very indecisive without a strong directional surprise from the data.</span></strong></span></p> <p><span>The market action of the last week for most USD pairs has proven woefully indecisive as most developments seem to fall short of a breakout and mean revert within the safety of the range. That&rsquo;s largely been the case elsewhere as well, with a few partial exceptions - the Scandies and EURJPY &nbsp;- discussed below. As the market narrative is one of wondering whether the inflation and labor market data will remain sufficiently hot for the Fed to hike &ldquo;one last time&rdquo; in May or June (about 18 basis points priced for the May 3 FOMC and 22 basis points priced for the June FOMC meeting suggest some see the risk that the Fed holds off on a hike in May, preferring June). Ahead of May 3, we really only have today&rsquo;s CPI, the March Retail Sales up on Friday, three more initial weekly claims releases and the March PCE inflation data ahead of that May 3 meeting. Woe for traders if today&rsquo;s data is conflicting or perfectly in-line rather than providing an obvious strong directional indication. A strong surprise in the core month-on-month CPI data (more than 0.2% below or above the 0.4% expected) likely needed for a strong reaction function.</span></p> <p><span>We have the FOMC minutes up later as well, but the debate on the implications for policy from the banking turmoil in the minutes may be discounted significantly, given that the Fed has had three more weeks to digest the follow-on impact and that the market has already priced 100 basis points of Fed &ldquo;easing&rdquo; relative to prior expectations before the March 9 unraveling of the SVB.</span></p> <p><span>But as we await the short term potential for the US March CPI to move the needle, it is perhaps worth rounding up a few long term observations:</span></p> <p><span><strong><span>Extreme Scandie weakness.</span></strong></span><span> Interesting to note the aggravated SEK and especially NOK weakness of late despite a constructive backdrop for risk sentiment (normally SEK positive) and the recent jump higher in oil prices (normally associated with NOK strength). What gives? Not entirely sure, but I did take a stab in <a href="https://www.home.saxo/content/articles/quarterly-outlook/fx-what-happens-when-a-tightening-cycle-ends-before-inflation-is-defeated-04042023">my Q2 outlook piece</a> in discussing whether the key here is simply an insufficient supply of domestic risk-free assets, in this case sovereign bonds, in which to park excess funds. This means that in the case of Norway that much of the oil and gas fund profits that are saved end up in offshore assets. Norway&rsquo;s sovereign debt is a paltry 13% of GDP &ndash; down from a peak of 19% during the pandemic response. The longer term trajectory of the SEK fits quite well with the long term trajectory of Sweden&rsquo;s sovereign debt as well, which is down to 18.5% of GDP (down from peak of 25+% during the pandemic response and nearly 33% back in 2015. Some enormous irony could lie ahead in which the expansion of domestic bond markets to address eventual economic weakness &ndash; particularly in Sweden due to housing distress, could mean a stronger currency via the provision of deeper local currency sovereign bond markets. Something structural to watch for even if we have no signs of this now. Sweden and Norway need to wake up &ndash; it&rsquo;s bordering on a national emergency when your currency falls 15% in the space of six months as NOK has against the EUR.</span></p> <p><span><strong><span>Chart: EURNOK<br /> </span></strong></span><span >The EURNOK rally accelerated yesterday on the release of the slightly hot Norwegian CPI (in-line with expectations at 6.2% YoY at the core vs. 5.9% in Feb and hotter than expected on the headline at 6.5% vs 6.1% expected and 6.3% in Feb. Traders should note how little traction NOK has gotten from the recent jump in oil prices. Norway&rsquo;s approach to addressing increased fiscal outlays in recent years has leaned far more on &ldquo;raiding&rdquo; the Wealth fund rather than raising the funds via the issuance of sovereign debt. A deeper low risk NOK-denominated government bond market with reasonable yields would probably go a long way to arresting the NOK&rsquo;s fall and better addressing high inflation than any monetary policy move. Until then, how high can EURNOK go? The only time NOK has traded weaker versus the Euro was in the brief period of extremely low oil prices during the pandemic outbreak months of early 2020.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/12_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong>EURJPY extraordinarily stretched &ndash; when does the convergence trade engage</strong></span><span>? The EURJPY rally has pulled above 146.00 today, leaving only the last shreds of the range to the high of 148.40 last October, which is also the highest level since a 149.78 high of 2015. The new high is in large part a disappointment on the signal of policy continuity from new Bank of Japan Governor Ueda on Monday. But looking out over the next couple of months, I&rsquo;m not sure I understand how the situation gets any more stretched than it has become for the 2-year yield spread &ndash; currently at 280 basis points and actually down from the high of 325 basis points before the recent banking turmoil. Either the BoJ begins to adjust to the rest of the world or the ECB has to back off due to mounting recession risks down the road. The difficulty is understanding the timing of this developments &ndash; something that will engage in coming weeks or not until well into the second half of this year? The first sanity check will be over the April 28 Bank of Japan meeting. </span></p> <p><span><strong><span>Why is the China re-opening story refusing to get traction?</span></strong></span><span> The about-face in China&rsquo;s zero Covid policy and ensuing policy signals have encouraged interest in the China &ldquo;re-opening&rdquo; story. And the numbers in China are responding, with huge improvements in measures of services sector activity and a pick-up in activity metrics like airline passenger traffic (frustratingly slow to come out, but domestic passenger traffic has picked back up to about 80% of pre-pandemic levels as of the end of February. The international numbers have ramped over 100% in two months through the end of February, but that end-Feb number is still down nearly 90% from pre-pandemic levels.) But key commodity prices, especially metals prices, and key currencies like AUD and NZD, have not responded meaningfully to this story. The recent very cool Chinese inflation numbers suggest room for China to pull harder on the stimulus levers, but the expression of this trade in G10 FX and in CNH is almost entirely absent.</span></p> <p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span>.<br /> Watching and waiting here as recent market move have proven treacherous and we have an important macro data point up today from the US.<span ></span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/12_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong>Table: FX Board Trend Scoreboard for individual pairs</strong></span><span>.<br /> <strong></strong></span><span >AUDNZD neutralized the recent downside attempt after seeming divergence in the RBA/RBNZ meetings that didn&rsquo;t play out in the relative rate spread. Building a new up-trend will take some doing, however. Note the NZDUSD downtrend attempt here&hellip; still a bit more range to work with and needs some confirmation from other USD pairs after the key US data.&nbsp;</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/12_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1230 &ndash; US Mar. CPI </span></li> <li><span>1300 &ndash; UK Bank of England Governor Bailey to speak </span></li> <li><span>1300 &ndash; US Fed&rsquo;s Barkin (Non-voter this year) to speak </span></li> <li><span>1400 &ndash; Canada Bank of Canada Rate Decision </span></li> <li>1700 &ndash; US Treasury auctions 10-year T-notes</li> <li><span>1800 &ndash; US FOMC Minutes </span></li> <li><span>2301 &ndash; UK Mar. RICS House Price Balance </span></li> <li><span>0130 &ndash; Australia Mar. Employment Change/Unemployment Rate</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 12 Apr 2023 11:10:00 Z2023-09-23T09:59:47Z{FEEFEB74-0155-4E49-88E9-7AF532B863F9}https://www.home.saxo/en-hk/content/articles/forex/fx-update-jpy-rally-a-choppy-affair-rbnz-surprises-with-big-hike-05042023John Hardyproduct-forexHighlighted articlesFX Update: JPY rally a choppy affair. RBNZ surprises with big hike.<div class="article-excerpt">The JPY rallied hard yesterday on a dip in US treasury yields after a weak job openings survey, but the price action remains choppy. Elsewhere, the RBNZ shocked with a big hike. </div><div class="article-rte"><div class="rte--output"><p><span>Our <a rel="noopener noreferrer" href="https://www.home.saxo/insights/news-and-research/thought-leadership/quarterly-outlook" target="_blank">Q2 Outlook</a>, titled The Fragmentation Game is now out.<br /> Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/market-jolted-by-jolts-an-overreaction-or-sign-of-fear/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-5-2023-05042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> JPY resets higher on US treasury yield drop after weak US job openings data. RBNZ surprises with big hike, sends AUDNZD to new cycle lows.</span></strong></span></p> <p><span>The February JOLTS job opening survey in the US surprised with a reading of 9.9 million jobs, over half a million below expectations and with a -260k revision to the prior number. It shouldn&rsquo;t have garnered the scale of reaction it got, but that just shows how sensitive the market is here to anything confirming fears of an economic slowdown. As I discussed in this morning&rsquo;s Saxo Market Call podcast, the JOLTS survey quite noticeably lagged the nonfarm payrolls change cycle in the prior two &ldquo;normal&rdquo; recessions in 2001 and 2007-08. Luckily, we have plenty more US data to entertain us over the coming week, including today&rsquo;s March ADP payrolls change and March ISM Services, tomorrow&rsquo;s latest weekly initial jobless claims number, Friday&rsquo;s March jobs report and the March CPI print next Wednesday. </span></p> <p><span>With the plunge in yields and risk sentiment finally wobbly rather than celebrating the drop, the JPY has ideal conditions to make a statement, which it about 50% did &ndash; pulling sharply higher versus the US dollar, but merely bouncing back from weakness elsewhere. To get more upside in JPY we&rsquo;ll need to see the US 10-year sticking new cycle lows below 3.25% and for the global growth outlook and risk sentiment to deteriorate, with a helpful push back lower in crude oil prices possibly also on the wish list. For now, the USDJPY is still &ldquo;underperforming&rdquo; to the downside relative to its traditional coincident indicator, the US 10-year treasury yield, which closed at its lowest level for the cycle near 3.35%, if several basis points above intraday lows during the recent banking turmoil in March. </span></p> <p><span>Broad weakness in the US dollar yesterday was partially reversed on weakening risk sentiment, and key individual USD pairs reversed entirely in the European session today. AUDUSD has been pounded back below 0.6700 (in part on AUDNZD flows &ndash; more below) even after RBA Governor Lowe was out overnight trying to position this week&rsquo;s hold on further interest rate increases as not necessarily a lead-in to eventually cutting rates: &ldquo;The decision to hold rates steady this month does not imply that interest rate increases are over,&rdquo; and &nbsp;&ldquo;Indeed, the board expects that some further tightening of monetary policy may well be needed to return inflation to target within a reasonable timeframe.&rdquo; The </span></p> <p><span><strong><span>Chart: AUDNZD<br /> </span></strong></span><span >The opposite impressions drawn from the RBA and RBNZ meeting this week have triggered a sharp slide in AUDNZD, as the RBNZ waxed hawkish and surprised with a 50-basis point hike overnight, with no indication that it is guiding for a pause. The larger hike from the RBNZ immediately transmits into the yield spread, which for the 2-year swaps has now dipped to within 10 basis points of the lowest weekly close since the 1990&rsquo;s at -162 basis points. RBA expectations for the coming few meetings are flat, while about a single further 25 basis point hike is priced in for the RBNZ despite the overnight 50 basis point move (25 basis points only was expected &ndash; also by me, and I was even leaning for a guidance shift). In the coming one or possibly two quarters, I suspect one of the central banks will be seen as having committed a policy mistake, whether it is Australia in having moved too cautiously as it seemed to want to avoid too much transmission of policy into slowing the economy and household budgets, or the RBNZ having taken things too quickly and causing a more disruptive unwind in the housing market and perhaps the wider economy (or is it a recession by design?). The March CoreLogic NZ home price data showed home prices declining at a record -10.5% YoY clip, just &ldquo;eclipsing&rdquo; the -9.7% low of the 2008-09 cycle. But note that we are coming off peak home price rises of higher than 25% YoY in late 2021 and into early 2022. AUDNZD is working down into its minimum valuation region assuming the policy divergence can't stretch much wider from here.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/05_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span ><strong>Table: FX Board of G10 and CNH trend evolution and strength</strong></span><span >.<br /> </span><span >Note the strength in gold and especially silver here &ndash; it this a vote of no-confidence in fiat currencies generally? I suspect it is&hellip; Otherwise, while sterling sits at the head of the class in relative strength among G10 currencies, it is difficult seeing it retaining that status if broader sentiment is primed for a setback. The JPY should have room to &ldquo;roar&rdquo; soon if this decline in yields continues and is accompanied with the coincident concern for the global outlook (weaker risk sentiment).</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/05_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >The AUDUSD reversal back below its 200-day moving average suggests the end of the recent breakout attempt to the upside. NZDUSD reversed badly today as well after the RBNZ shocker goosed the price action to 0.6379 overnight &ndash; trading below 0.6300 near the time of this writing.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/05_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1215 &ndash; US Mar. ADP Employment Change </span></li> <li><span>1230 &ndash; US Feb. Trade Balance </span></li> <li><span>1230 &ndash; Canada Feb. International Merchandise Trade </span></li> <li><span>1345 &ndash; US Mar. Final S&amp;P Global Services PMI </span></li> <li><span>1400 &ndash; ECB Chief Economist Lane to speak </span></li> <li><span>1400 &ndash; US Mar. ISM Services </span></li> <li><span >0130 &ndash; Australia Feb. Trade Balance</span></li> <li><span>0145 &ndash; China Mar. Caixin Services PMI</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Wed, 05 Apr 2023 11:40:00 Z2023-09-22T22:43:09Z{5CBBC19B-3AA0-4253-9F26-A6E09493481E}https://www.home.saxo/en-hk/content/articles/forex/fx-update-usd-slide-arrested-as-yields-rebound-jpy-weak-04042023John Hardyproduct-forexHighlighted articlesFX Update: USD slide arrested as yields rebound. JPY weak.<div class="article-excerpt">EURUSD failed at key resistance so far today as yields rebounded. That yield pressure helping a weak JPY weaken even further today. RBNZ on tap tonight.</div><div class="article-rte"><div class="rte--output"><p><span>Our <a rel="noopener noreferrer" href="https://www.home.saxo/insights/news-and-research/thought-leadership/quarterly-outlook" target="_blank">Q2 Outlook</a>, titled The Fragmentation Game is now out.<br /> Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/market-shrugs-off-oil-spike-celebrates-lower-yields/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-apr-4-2023-04042023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> USD weakness fades today as yields rebound. JPY was weak and weakened further, in part on crude oil spike. AUD churns before and after RBA. RBNZ on tap.</span></strong></span></p> <p><span>The US dollar was perched at the key EURUSD resistance in the 1.0930+ area at its highs today on the combination yesterday of lower US treasury yields on a weak ISM Manufacturing report, and the market&rsquo;s benign assessment of the situation (i.e., risk appetite is still firm) - the most USD-negative combination available. Elsewhere, the USD had already broken sharply lower versus sterling after the well-defined sub-1.2450 pivot gave way this morning. Rather comical that that move unfolded and was extending even as the perma-dovish BoE&rsquo;s Tenreyro was out this morning talking up the need for easier policy: &ldquo;In the absence of further counterbalancing cost-push shocks, I judge inflation is likely to fall well below target.&rdquo; The BoE maintains the most aggressively complacent view on inflation over the next 12-24 months relative to its peers, a big risk for the bank&rsquo;s credibility.</span></p> <p><span>Alas, yields have rebounded and eased a portion of yesterday&rsquo;s drop, helping to aggravate the weakness in an already vulnerable JPY as the new Japanese financial year gets underway. The yield factor hasn&rsquo;t correlated consistently of late with the JPY drop, but the surge in crude oil prices is certainly a JPY-negative on Japan&rsquo;s total reliance on imported supplies. It&rsquo;s easy to write it off as unexplainable volatility from which we can draw few conclusions as a new Japanese financial year gets underway, but EURJPY, for example, bears watching as it teases the upper edge of the recent range north of 135.00, just as EURUSD also did today. I suspect we could continue to see erratic JPY moves until we have Kazuo Ueda in action and especially around the first BoJ meeting under his leadership on April 28. </span></p> <p><span><strong><span>Chart: EURUSD<br /> </span></strong></span><span >EURUSD has once again teased the 1.0930 area resistance today, the fourth day running it has done so without engineering a proper break. An extension higher requires the difficult, if possible, combination of weaker US data that continues to deflate Fed rate expectations out the curve but doesn&rsquo;t trigger weaker risk sentiment. A firming in yields today helped walk the EURUSD back lower today, but bears can&rsquo;t really build a downside case here until or unless we erase the 1.0800-1.0750 zone on a sudden lurch lower. Either way, difficult to see the action sustained for long in this nervous area between that downside swing area and the 1.1000+ resistance.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/04_04_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span>The RBA paused its rate hike cycle yesterday as expected, a decision that capped an upstart sharp AUD rally</span><span data-ccp-props="{'134233117':false,'134233118':false,'201341983':0,'335551550':1,'335551620':1,'335559685':0,'335559737':0,'335559738':0,'335559739':160,'335559740':252}">&nbsp;into the meeting. Market expectations for an RBA pause had been quite firm, but AUD shorts might have been spooked by data yesterday showing that house prices rose sharply in Sydney by 1.4% in March and nationwide prices showing their first advance after ten months of declines. In any case, AUD rallied hard yesterday ahead of the meeting, which only produced the expected pause and a partial deflation of the rally. The new monetary policy statement retains a bias for further tightening, and positioned today&rsquo;s hold on further increase as something the &ldquo;provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.&rdquo;<span data-ccp-props="{'134233117':false,'134233118':false,'201341983':0,'335551550':1,'335551620':1,'335559685':0,'335559737':0,'335559738':0,'335559739':160,'335559740':252}"> As of this writing, AUDUSD is still hanging on to the break above the 200-day moving average around 0.6750, but the AUDNZD rally from yesterday has more completely reversed course, although note a tilt in our assessment of the more likely RBNZ surprise side below.</span></span></p> <p><span><strong><span>RBNZ &ndash; more room for a dovish surprise?</span></strong></span><span> </span><span>&nbsp;The RBNZ is expected to hike 25 basis points to bring the rate to 5.00%, taking its rate to the highest among G10 currencies, just ahead of the US. The market has priced another 25 basis points of further tightening beyond tomorrow&rsquo;s decision before the RBNZ peak, but at the big round 5.00% level we could have the risk that the RBNZ feels it has done enough for now and would like to indicate that it may like the option to pause soon if it doesn&rsquo;t pre-commit (somewhat like the RBA today and Bank of Canada recently) after this decision after decelerating from a 75 basis point hike in November to a 50 basis point hike in February and then the 25 basis points tonight. Still, we have perhaps 60% odds that we get a hike and a bias for further tightening with no specifics, 30% odds of some dovish &ldquo;pivot optionality&rdquo; similar to the language. 10% odds of a insistence on maintaining a hawkish message because of the kinds of concerns expressed in the February statement (for example, that spending to address a recent flooding disaster could have an additional inflationary impact).</span></p> <p><span ><strong>Table: FX Board of G10 and CNH trend evolution and strength</strong></span><span >.<br /> </span><span >The US weakness only exceeded now by CNH weakness and the HKMA was also out intervening in the USDHKD rate to maintain the upper edge of that trading band. The AUD has rebounded from aggravated weakness of two weeks ago, but has yet to show a sustained rally. NOK and CAD not getting as much of a boost as one might expect from the oil surge. Sterling enjoying broad strength.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/04_04_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >AUDUSD needs to maintain above the 200-day moving average and follow through higher to confirm the new uptrend attempt here. NOKSEK has softened up the long downtrend with this latest reversal, but may only be ready to get something new going to the upside if oil prices can sustain a run higher as well.</span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/04_04_2023_jjh_update_03.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1400 &ndash; US Feb. JOLTS Job Openings </span></li> <li><span>1400 &ndash; US Feb. Factory Orders </span></li> <li><span>1430 &ndash; UK Bank of England Chief Economist Huw Pill to speak </span></li> <li><span>1730-45 &ndash; Fed speakers Cook and Collins at conference </span></li> <li><span>2245 &ndash; US Fed&rsquo;s Mester (non-voter) to speak </span></li> <li><span>0200 &ndash; New Zealand RBNZ Official Cash Rate decision</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Tue, 04 Apr 2023 11:40:00 Z2023-09-23T08:18:28Z{A9263999-1F9A-440D-9789-2B42657F094A}https://www.home.saxo/en-hk/content/articles/quarterly-outlook/fx-what-happens-when-a-tightening-cycle-ends-before-inflation-is-defeated-04042023John HardyPrimary-Quarterly OutlookPrimary-Quarterly Outlook 1st rowFX: What happens when a tightening cycle ends before inflation is defeated<div class="article-excerpt">Bank challenges have effectively ended the tigthening cycle, but inflation is still high. This brings forward a very challenging policy environment for central banks, which may generate different outcomes for different forex pairs.</div><div class="article-rte"><div class="rte--output"><p><em>The central bank tightening cycle has effectively already reversed as a function of lower forward expectations. That cycle came to an end on the sudden meltdown and official intervention over two consecutive weekends to avoid systemic risks stemming from failed or failing banks, in the case of Silicon Valley Bank and Credit Suisse, respectively. These situations arrived with such speed and impact that we have seen some of the most violent moves in US interest rates at the short end of the yield curve in market memory. Indeed, the central bank tightening cycle finally &ldquo;broke something&rdquo;. Unfortunately for policymakers, that something was pockets of the banking system rather than inflation. While bank funding challenges are likely to bring the recession forward, inflation will likely bottom at a very high level, presenting the worst possible policy challenge for central banks.</em></p> <p>With perfect hindsight, the tightening cycle that kicked off in late 2021, but really didn&rsquo;t accelerate until the summer of last year, was too much, too fast for the weakest links in the global financial system, even if the real economy was weathering the policy headwinds very well (as well as a number of emergency support measures, especially in Europe, that helped sustain inflation levels). But these new cracks in the system come at an awkward time for central banks, who are far from putting the inflation genie back in the bottle. Economies continue to absorb the monetary and fiscal policy excesses brought about by the pandemic, and new industrial policy and national security spending imperatives brought on by the Fragmentation Game that is the underlying theme of this Outlook risk aggravating inflation further from here. As fiscal austerity is out the window, not only on those imperatives, but also due to automatic CPI indexing of social transfer payments, inflation has sustainably reset to a higher, if probably far more volatile, level. </p> <p>While a cessation of central bank policy tightening may be upon us, we&rsquo;re not likely to see the kind of across-the-board celebration in risky assets that prior easing cycles have brought. First, sticky inflation will likely make it difficult for central banks to ease on anything close to the scale of previous cycles once we do get to an actual policy easing. Second, the market realisation that central banks will fail to get ahead of inflation and the ensuing setting of long-term inflation expectations higher will likely mean that long yields remain pinned at uncomfortably high levels, even if the economy begins slowing due to a credit crunch. It&rsquo;s the worst of all worlds for central banks, which will be caught between the rock of inflation and the hard place of governments needing to continue to support the economy with deep-deficit fiscal spending. What do they do? </p> <h4><strong>They all turn to the Japanese playbook in the end</strong></h4> <p>Let&rsquo;s consider the next slowdown, possibly brought about by a weakening credit cycle, but with funding expensive because of still-high inflation: eventually too expensive for governments to issue the scale of debt they will require for spending needs without destabilising bond markets. (Think Truss-Kwarteng bond response writ large). In any crisis, the sovereign must be funded, so the sovereign will be funded. And if bond markets ring the alarm bell, central banks must swing into action and will ultimately implement Bank of Japan-style yield curve control (YCC) on bond markets as they are reduced to mere accessories, or even enablers of the sovereign. The move may not be explicit at first, but it will be <em>de facto</em>. And it means we are now crossing the threshold into this new era in which central banks have lost their independence.</p> <p>The yield levels in a new YCC regime won&rsquo;t be anything like the BoJ&rsquo;s -0.10% and 10-year cap of 0.50% (up from the 0.25% of the prior several years) but far, far higher. But they will still always be somewhere below the average inflation level, whether that means a policy rate of 3 and inflation of 6, or 4 and 7, or even 2 and 4, respectively. All sovereign governments need to deleverage either themselves (US, UK, parts of Europe, Japan) or their economies (everyone else in this bucket) or both (France!) and the only way to do so is via default (unacceptable), an enormous growth bonanza (impossible), or devaluation of debt through inflation (bingo). </p> <p>In other words, we can never expect that central banks will manage to hike policy rates into meaningful positive territory nor tolerate the spending and nominal growth speed-limiters of high long rates. That spells an eventual yield curve control to both keep the fiscal side funded, and keep real rates negative. Negative real rates of negative two to three percent over a couple of decades can reset debt to sustainable levels. The game for currency investors will be to determine which currencies are likely to offer the least bad negative real rates and which assets can maintain the highest real returns (hard assets and companies that can raise prices at inflation or better) and which economies offer the most of these assets in a world engaging in the Fragmentation Game.</p> <h4>Chart: JPY on the road to recovery?</h4> <p><em>Q2 sees the dawn of a new era for the Japanese yen, and not just because Bank of Japan governor Haruhiko Kuroda is set to leave in April after ten years at the helm, but also as we are likely on the road to other central banks shifting, by necessity, to mimicking Bank of Japan policy, even if at different nominal yield levels. If so, this could help take the pressure off the JPY to some degree if lower and even negative long-term real (not nominal!) yield expectations become more embedded everywhere as we expect will be the case. Japanese investors may repatriate a portion of their immense savings if real yields elsewhere are unsatisfactory. This could allow a significant repricing of the broader JPY higher over the next couple of years, perhaps 10-15% in the CPI-adjusted Japanese yen real-effective rate index shown below. </em></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/april/qo2-23/01-john.png"/></div><div class="article-additional-rte"><div class="rte--output"><h4><strong>What will this mean for individual currencies?</strong></h4> <p><strong>USD </strong>&ndash; The Fed was the most aggressive to tighten and at first blush, the USD may have the most to lose on the unwinding of policy expectations. But this turmoil and risk of a credit crunch have brought forward the eventual recession and the USD will still find pockets of strength as a safe haven through periods of market turmoil. The USD may only begin a more determined fall when the policy response is seen beginning to catch up during the next recession, though the USD peak was likely last fall.</p> <p><strong>EUR</strong> &ndash; In Q2, gone is the recent focus on late cycle ECB tightening. Instead, the EU could struggle with its enormous banks and bank funding/liabilities, with the risk that EU members move at different speeds to address the situation. The EU seems to always need a proper crisis to get a determined policy response. Neutral.</p> <p><strong>JPY</strong> &ndash; The BoJ paid a very heavy price for its YCC last year as it lost control of its balance sheet to enforce the policy, and the JPY paid the price. The Bank of Japan yield curve policies will still need adjustment higher if inflation stays at these levels, even as other central banks are seen &ldquo;turning Japanese&rdquo; as we argue above. General JPY outperformance expected over the coming year versus USD and Euro in particular.</p> <p><strong>GBP </strong>&ndash; The UK will prove more nimble in its policy response, as was seen in the wake of the Gilt/LDI crisis that brought the sudden end of the Truss-Kwarteng government. Still, the UK structural backdrop remains alarming, although it is difficult to determine how much of that alarm is already in the low price.</p> <p><strong>CHF</strong> &ndash; The SNB-arranged UBS takeover of Credit Suisse put the central bank&rsquo;s balance sheet on the line with a string of guarantees. Luckily for CHF, that balance sheet is enormous, but the franc may be set to absorb some weakness in the near term on this move and the ongoing fallout, also as the Fragmentation Game may not be kind to Switzerland&rsquo;s traditional all-welcome banking model, as the country will have to increasingly choose sides, as it did on Russia&rsquo;s invasion of Ukraine.</p> <p><strong>The commodity dollars AUD, CAD and NZD</strong> &ndash; These may all see a race against the attractiveness of their hard asset commodity exports on the positive side with the negative side of high levels of private debt and the risk from a housing correction, particularly in Canada and Australia. </p> <p><strong>The Scandies NOK and SEK</strong> &ndash; The most positive news for NOK and SEK could be a deeper local government bond market and a Norway and Sweden that require banks and other institutions to hold more savings domestically. A policy move in this direction could weigh more on the upside than any downside risks to Scandies from the usual vulnerabilities (weaker global liquidity in the eventual downturn). That&rsquo;s not to say that it will happen. Still, NOK looks particularly cheap. With punitive real rates in Sweden in particular, the two countries would do well to address the portion of inflation driven by excessive currency weakness, even if the country is vulnerable to a systemic risks from an unwind of its housing bubble. A space to watch for the balance of the year!</p> <p><strong>CNH</strong> - One of the most anticipated developments in Q1 was the China re-opening story that was meant to crystallise in the wake of Chinese authorities&rsquo; decision to abruptly end its zero-tolerance policy on Covid. Indeed, many metrics from the Chinese economy show one of the sharpest improvements in activity from very low levels. But the steep comeback in equities faltered already by early February, and around the same time, rallies in commodity proxies meant to enjoy the Chinese recovery have fizzled badly as well. The Chinese recovery was always going to sit awkwardly with the Fragmentation Game theme as countries, especially the US and its security allies, including Europe, want to diversify all key supply chains reliant on China. Stability will always be China&rsquo;s imperative, but the CNH likely has a very low ceiling as China&rsquo;s currency is overvalued, as its policy can&rsquo;t help but also &ldquo;turn Japanese&rdquo; to devalue the debt thrown off by the malinvestment of recent years. The USDCNH leaves Q1 in perfect mid-range against the US dollar, and China will likely want to keep it there.</p> <p><strong>EM currencies</strong> &ndash; There are too many EM situations to enumerate here, but EM currencies don&rsquo;t have the leverage domestically, and negative real yields elsewhere will likely help keep them clear of trouble on the debt side of the leverage as inflation erodes the real value of their legacy debt. This should mean that EM countries that can keep interest rates meaningfully positive are likely to be able to attract investment even as they run current account deficits, offering excellent returns in coming years once we get through the turmoil phase of the eventually incoming recession of this cycle (which risks having been brought forward, as noted above, by the bank funding crisis risks). The Mexican peso, for example, got over its skis in the most recent cycle, in part on the enthusiasm for its less negative real rates as the Mexican central bank matched inflation levels with its policy rate, but also as the Fragmentation Game theme has already been in play there, as many investors see enormous potential for friend-shoring of production capacity by US companies, including Tesla.</p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/thought-leadership/quarterly-outlook">Quarterly Outlook</a> <a href="https://www.home.saxo/en-hk/insights/news-and-research/thought-leadership/quarterly-outlook">Quarterly Outlook 1st row</a></div>Tue, 04 Apr 2023 06:00:00 Z2023-04-04T05:40:13Z{E242A97D-CCD8-4DAE-808C-7FD4AC6B4B43}https://www.home.saxo/en-hk/content/articles/forex/fx-update-waiting-game-for-next-shoe-to-drop-27032023John Hardyproduct-forexHighlighted articlesFX Update: Waiting game for next shoe to drop.<div class="article-excerpt">Markets are maintaining a nervous calm as we await the next shoe to drop, with FX traders struggling to find conviction and with a light data calendar for the week ahead. </div><div class="article-rte"><div class="rte--output"><p><span>Today's <a rel="noopener noreferrer" href="https://saxostrats.podbean.com/e/markets-try-to-stabilize-but-looking-for-next-shoe-to-drop/" target="_blank">Saxo Market Call</a> podcast<br /> Today's<a href="https://www.home.saxo/en-hk/content/articles/macro/global-market-quick-take-europe-mar-27-2023-27032023"> Global Market Quick Take: Europe&nbsp;</a>from the Saxo Strategy Team</span><strong><span><br /> </span></strong></p> <span ><strong></strong></span> <p><span><strong><span>FX Trading focus:</span></strong></span><span><strong><span> Systemic pressures remain a focus in near term, but eventual next shoe to drop will be the economy as recent turmoil has brought the recession sharply forward.</span></strong></span></p> <p><span>Even as the turmoil that US banks and eventually global banks and wider sentiment remains in focus and a soft spot, markets managed to bounce into the close on Friday, with yields pulling back from cycle lows in the US following through into the European morning today, with yields continuing to bounce, but the bank-related assets like Tier1 debt and banks stocks struggling after a rally attempt, as noted in the EURUSD comments below. Looking ahead at the calendar for this week is hardly inspiring, though we do get some timely Germany and EU March inflation data on Thursday and Friday and less timely US inflation data, the February PCE inflation data, on Friday. Tomorrow, we get a look at the March US Consumer Confidence survey, a bit more interesting than usual for a measure on whether the situation is impacting US confidence more broadly, but also as the February Expectations-Present Situation hit its lowest level, at -83.1, for the cycle and since 2001 (in fact, since the initiation of the survey in the 1960&rsquo;s, it has only been worse than that February reading in a cluster of three months back in early 2001.)</span></p> <p><span>The optimists, and perhaps the USD bears, would point out that we are already seeing vastly easier monetary conditions, as the removal of expectations for Fed hikes and the general mark-down of the entire US treasury yield curve is a net easing of financial conditions, and as the Fed&rsquo;s recent backstopping moves have seen its balance sheet suddenly balloon nearly $400 billion, wiping away months of QT. On the other hand, the growth in the Fed&rsquo;s balance sheet is chiefly a reflection of commercial bank balance sheet pressures as banks access the expensive discount window (relative to near zero-interest bearing standard deposits) and BTFP facility. And high yield corporate credit spreads are also at local highs, well above 500 basis points as of Friday&rsquo;s close. History often shows us (in 2001-02 and then again in 2007-09) that the worst market outcomes are in the phase of the yield curve steepening aggressively as yields are bracing for the incoming recession and as the recession starts to play out, with sentiment usually bottoming long after policymakers have . We&rsquo;re very early in this process &ndash; now better able to get a handle on the recession having now been brought sharply forward by this latest turmoil and tightening credit conditions, but with hardly any signs of a softening economy.</span></p> <p><span>Elsewhere, the lack of the Japanese yen&rsquo;s ability to catch a firmer bid on the latest interest rate turmoil is noteworthy, but does suggest that we need to see a more determined fall in yields &ndash; and one that is combined with broader sentiment hitting the skids &ndash; for the JPY to sustain a rally. Still, the JPY bears watching as the Japanese financial year draws to a close those Friday and as Governor Kuroda rides off into the sunset next week, with Kazuo Ueda set to take the reins.</span></p> <p><span><strong><span>Chart: EURUSD<br /> </span></strong></span><span >EURUSD is a decent barometer for where we are with the US dollar. The upside was tamed by the sense that many of the same dynamics that have US banks under pressure also plague European banks, as seen in share prices still under pressure and in very high yields on banks&rsquo; Tier 1 bonds after the SNB wiped out Credit Suisse Tier 1 bond debt holders in the USB takeover deal and despite EU assurances that Tier 1 debt ranks higher than common equity in the capital structure. The high yields on Tier 1 bonds suggest that EU banks should be issuing equity, a dilution risk that has investors still treating European bank shares with extreme caution this morning, with a significant morning bounce largely wiped away as of this writing. Alas, for FX investors, the general lack of wider systemic contagion despite the intense focus on banks means that FX is struggling for inspiration. After the sprint higher to 1.0930, the pair traded in the low 1.0700&rsquo;s on Friday, and it appears the 1.0700-50 is the downside swing zone, with more risk contagion likely needed to get the greenback firmly back on top of the single currency.</span></p> <p><span></span></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/march/27_03_2023_jjh_update_01.png"/></div><div class="rte--output">Source: Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board of G10 and CNH trend evolution and strength</span></strong></span><span>.<br /> </span><span >Odd companions at the top of the trending table are the yen, which got a solid bump from the recent downshift in global yields and sterling, where got a minor upgrade in BoE rhetoric on defending against inflation risks, but not much else. The laggards are AUD, NZD and CAD as the China re-opening story has struggled for confirmation in markets and as oil prices remain mired near 1-year lows.</span></p> <p><strong><span></span></strong></p></div></div><div class="article-image"><img alt="" src="https://www.home.saxo/-/media/content-hub/images/2023/march/27_03_2023_jjh_update_02.png"/></div><div class="rte--output">Source: Bloomberg and Saxo Group</div><br/><div class="article-additional-rte"><div class="rte--output"><p><span><strong><span>Table: FX Board Trend Scoreboard for individual pairs</span></strong></span><span>.<br /> </span><span >Momentum has come out of recent developments like a potential EURSEK downtrend, where there is also concern on Sweden&rsquo;s financial system. JPY crosses are all in negative trend status, but many are very choppy and not particularly compelling, including the likes of EURJPY and GBPJPY.</span></p></div></div><div class="article-additional-rte"><div class="rte--output"><p><strong><span>Upcoming Economic Calendar Highlights</span></strong><span></span></p> <ul> <li><span>1430 &ndash; US Mar. Dallas Fed Manufacturing Activity </span></li> <li><span>1700 &ndash; US 2-year Treasury Auction </span></li> <li><span>1700 &ndash; UK Bank of England Governor Bailey to speak </span></li> <li><span>2100 &ndash; US Fed&rsquo;s Jefferson (voter) to speak</span></li> </ul> <p><span> </span></p></div></div><div><img style="float: left; margin-right: 12px;" src="https://www.home.saxo/-/media/content-hub/images/general/author-profile-pictures/john-hardy-400x400.png?mw=48" alt="John Hardy" /><div>John Hardy</div><div>Head of FX Strategy</div><div>Saxo Bank</div></div><div ><b>Topics:</b> <a href="https://www.home.saxo/en-hk/insights/news-and-research/forex">Forex</a> <span>Highlighted articles</span></div>Mon, 27 Mar 2023 11:20:00 Z2023-09-23T03:43:40Z