FX Update: Pivotal week ahead with FOMC, UK election and US-China trade talks FX Update: Pivotal week ahead with FOMC, UK election and US-China trade talks FX Update: Pivotal week ahead with FOMC, UK election and US-China trade talks

FX Update: Pivotal week ahead with FOMC, UK election and US-China trade talks

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  The FOMC and ECB are set to meet this week, with a number of EM central bank decision on tap. While the FOMC meeting could prove interesting, the UK election will inevitably prove pivotal for sterling and the question of the US-China trade negotiations ahead of the scheduled December 15 US tariffs on Chinese imports is easily the most pressing.

Markets are in a buoyant mood coming into this week on the narrative that the global economy is stabilizing and that the central banks have opened the taps for maximum liquidity – particularly in the Fed’s case to avoid any liquidity mishaps into year end. Since the first of September, the Fed has expanded its balance sheet by some $300 billion. The messaging from the Fed around how it views the ongoing expansion of its balance sheet could prove the most pivotal takeaway from the FOMC meeting on Wednesday, as the prior meeting made clear that the Fed wants to pause on cutting rates for now. The blowout November US jobs report on Friday makes it easier for the Fed to justify the pause.

But the most pressing issue looming over this market is the fate of the US-China trade negotiations, the never-ending story that now finally requires a concrete decision – even if just a punt/delay – because of the approaching December 15 implementation date of the last round of US tariffs. China, meanwhile, sent an interesting message over the weekend in ordering its public sector to eliminate all foreign suppliers of computer equipment, an obvious move against US tech giants.

Ahead of the UK election, the consensus strongly points to Boris Johnson’s Tories sustaining a sufficiently large lead to realize a majority Tory government. The Guardian measure of polls shows the Tories with a 10% lead on Labour, though as my colleague Ole pointed out on this morning’s Market Call, tactical voting is a risk, not to mention that the unusually large LibDem popularity (as a Remain vote) is a complicating factor. Sterling is strongly bid again this morning, but would be surprised to see a significant extension ahead of Thursday. In the options market, the skew is strongly negative, i.e., the market knows that the side with the most volatility risk over the election is to the downside on an election shocker (hung  parliament leading to more delay, etc.).

The US and Canadian jobs reports on Friday provided a massive contrast that caught USDCAD shorts (on the back of a less dovish Bank of Canada meeting on Wednesday) the wrong way around. Canada’s unemployment rate leapt an eye-watering 0.4% to 5.9% in just one month. Even if the data series is choppy, this is a weak development that bears further watching.

After recently posting record low implied volatility for every major option time horizon, EURUSD is potentially pivotal over the US-China trade negotiations outcome potentially far more than over the FOMC and ECB meeting this week. Ugly outcomes that see the December 15 round of tariffs going into effect are potential EUR negative as the EU is the most dependent bloc on exports, especially to China. Technically, a failure below the recently pivotal 1.1000 is the first sign of a fresh breakdown, while bulls at this point really need that strong surge above 1.1180 to suggest the pair is finally on the move to the upside.

Source: Saxo Group

The G-10 rundown

USD -  the USD has drifted back and forth without conviction and the background factor suggesting that it is actually remarkably strong is that the Fed’s liquidity provision and three rate cuts have not yet engineered a major retreat.

EUR – as indecisive as ever here, but the single currency generally at risk on further negative news on the global economy and from negative outcomes for US-China trade talks. EURJPY looking interesting for downside potential, given JPY comments below.

JPY – historically highly responsive to US data, the heaviness in JPY crosses is notable and could deepen significantly on concern that the US-China relationship headed for further deterioration.

GBP – surprising to see the market continuing to bid up sterling when little has shifted in expectations terms. The higher it goes, the less potential for further upside if the consensus scenario of a Tory majority obtains.

CHF – residual bids in CHF on concerns that US-China trade relationship not headed in the right direction? Certainly, the EURCHF chart very inconclusive between 1.0850 and 1.1050.

AUD – the Aussie should be reactive to US-China trade talk news of sufficient clarity, but also watching  a couple of interesting data points on the calendar Down Under, including tonight’s NAB Business survey. A longer-term, overarching risk for Australia is climate policy as the country has a uniquely dirty footprint linked as well to China (coal and iron ore) in an ecologically fragile corner of the world.

CAD – a whipsaw week for USDCAD last week on the less dovish Bank of Canada and then the disaster of Canada’s jobs numbers for November. CAD most at risk on weaker oil prices and any US data misses,  but also sensitive to the trade tension.

NZD – the kiwi is over-achieving here but not sure where the catalyst for a reality check arrives from (outside of US-China trade noise triggering a downdraft).

SEK – a lot of tension in the SEK outlook. Supportive at the moment is the Riksbank’s determination to hike rates to zero this month and the backdrop of strong risk appetite, but potential negatives are extremely poor data in Sweden and any risks to the global outlook from the US-China trade talks.

NOK – the technical situation looks promising tactically for EURNOK bears as oil prices have also bulled up a bit  higher on the latest OPEC shenanigans, but  any NOK upside could quickly get cut short if the US-China trade talks sour. Also,  seasonal headwinds for NOK into year-end.

Today’s Economic Calendar Highlights (all times GMT)

  • 1315 – Canada Nov. Housing Starts
  • 1330 – Canada Nov. Building Permits
  • 2205 – Australia RBA’s Lowe to Speak
  • 0030 – Australia Q3 House Price Index
  • 0030 – Australia Nov. NAB Business Survey

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.