FX Update: Whiplash pivot in risk sentiment, G3 rise versus the rest FX Update: Whiplash pivot in risk sentiment, G3 rise versus the rest FX Update: Whiplash pivot in risk sentiment, G3 rise versus the rest

FX Update: Whiplash pivot in risk sentiment, G3 rise versus the rest

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The G3 currencies have risen sharply versus most other currencies, led by euro short covering, as risk sentiment has taken a sudden beating before and after weak earnings reports from key US megacap giants Apple and Amazon. At the margin, the market may also be spooked by a fresh spike in USDCNH today as US-China tensions are clearly on the rise.

Have a listen to today’s Saxo Market Call podcast and this morning’s Quick Take, in which we discuss the sudden pivot in risk sentiment and the likely drivers, including a sobering outlook for Q2 from Amazon on rising costs for dealing with the Covid19 outbreak. Elsewhere, we’re especially spooked by the new-old risk of US-China relations deteriorating as we discuss and I add to below.

The ECB meeting did see the bank deepening its commitment to easy terms for the banking sector as the rates on TLTRO loans can drop as low as -1.00% - a direct bank subsidy. Lagarde also announced a new PELTRO or “pandemic emergency” LTRO. But Italian BTP spreads were not notably improved or changed on the day as little was said otherwise with existential implications (nor is the ECB able to go there except by obfuscation on the mix of its purchases.). Still, the euro rallied hard later in the day – and I suspect that the timing of that rally, coming as it did long after the end of the Lagarde press conference, points more to unwinding of consensus EUR shorts across the board more than any narrative we can gin up from this ECB meeting, as EURUSD; for example, was trading near the lows of the day as the ECB press conference was concluding (also, not coincidentally, the high of the day for US stock futures).

USDCNH alert
Overnight, the USDCNH rate ripped higher to 7.13, a move of over +0.7% and thus the largest since March. (The mainland USDCNY rate was not trading due to the May 1 holiday). There was no specific catalyst other than a notable turn in US President Trump’s more pointed comments questioning the origin of the Covid19 virus and other recent comments suggesting he thought China was out to ensure that he would not be re-elected. This is certainly an important barometer for US-China relations and suddenly becomes a massive factor for markets if the rate is allowed to move more than another 0.5% higher or so to new highs for the cycle because it suddenly flags a possible intent to devalue that will thoroughly spook global markets. Stay tuned.

We are watching today’s closing levels for risk sentiment – especially the US indices, of course, with Europe out on holiday today – as a set up for our stance on the USD going into next week, a week expected to produce a monthly tally for job losses in April of over -20 million (already evident in the claims, but nonetheless…). And as we discuss below with USDCNH, we also add a more intensified focus on the risks of a deteriorating US-China relationship and the outbreak of new overt trade policy hostilities.


Chart: USDCAD weekly
Looking at weekly closes for the US dollar versus the more pro-cyclical currencies like the commodity dollars (AUD, CAD and NZD) as an indication of whether the big dollar is ready to retest the upside versus here in sympathy with new found negative sentiment across markets. In the case of USDCAD we saw a successful test of the consolidation lows and a strong move off those levels – a strong close today and we will be on the lookout for progress back toward the cycle highs in the weeks to come.

Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, 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.