FX Update: Traders afraid to take a stand on the USD. FX Update: Traders afraid to take a stand on the USD. FX Update: Traders afraid to take a stand on the USD.

FX Update: Traders afraid to take a stand on the USD.

Education 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The US dollar is firming again, but moves have been so hesitant and lacking in staying power in both directions recently. Making it clear that USD traders are plagued with uncertainty here and want to wait as long as possible, perhaps for a firmer message from the Fed on its next steps, before committing risk to any traders. Elsewhere, TRY plumbed new lows on Erdogan calls for rate cuts and the CNY is weaker on the PBOC enlisting help from Chinese banks to sell the currency.

FX Trading focus: Traders afraid to take a stand on the US dollar

Yesterday saw GBPUSD pushing to new highs for the year, with the move starting at an odd time of day in Asian hours, in the middle of the night for London traders who were finishing up a three-day holiday weekend, as were New York traders. By mid-morning in Europe, the move was entirely unwound, suggesting that there was not conviction behind it and that it may have been a run on weak shorts with stops above the range. The pump and dump resembled moves in other USD pairs we have seen of late, where sustained direction is impossible to come by and suggests that traders are reluctant to take a stand on USD direction until perhaps having a look at this Friday’s jobs report, together with the June 16 FOMC meeting and whether the recent taper talk shapes up into something with a bit more urgency than merely an agreement to begin discussing it some point. Yesterday, the Fed’s Brainard, normally quite resolutely dovish, tried to maintain the difficult stance of two-way credibility on what the Fed may eventually do, noting that the US economy is far from the Fed’s goals while acknowledging two-way risks.

In the May ISM Manufacturing data yesterday, while the headline and other key numbers were very strong, it was rather interesting that the employment sub-index dropped to 50.9 vs. nearly 55 expected and versus above 55 in April. The manufacturing sector in the US is small and the ISM services survey out tomorrow is more important for employment indications as this is the dominant part of the US economy and where the “opening up” effect will be strongest from the end of Covid restrictions, the last of which should be fading in the holdout areas this month.

The GBPUSD breakout higher oddly showed up in Asian hours after a UK and US holiday and reversed sharply back lower. Pattern traders might be quick to jump on such a well-defined reversal as a sign that more selling pressure lies ahead, but the poor “quality of the initial” rally more likely means that the information value of the price action is virtually nil. Rather, any more significant downside pressure would seem more likely to come from, for example, a far stronger than expected US May jobs report and fears that the June 16 FOMC meeting will bring a firmer commitment to investigate tapering rather sooner than later. For now, the technically pivotal area to the downside is 1.400 as the price action since March has made clear.

Source: Saxo Group

Erdogan sends TRY into a tail-spin on rate cut comments. In an interview late yesterday, Turkish President Erdogan claimed that he had spoken with the central bank chief Kacvioglu yesterday and that it is “imperative that we lower interest rates. For that, we will reach July and August … so that rates can begin to fall”. This sent TRY into a fresh nosedive from around 8.52 at the time of the comments to 8.80 before the price action settled back toward 8.62. With inflation in May (data release tomorrow) expected to show price rises of more than 17% year-on-year, the inflation rate is running close to the 19% policy rate. And any threat to lower the latter could send the lira into a further tailspin, notwithstanding Erdogan’s belief that raising rates causes higher inflation. One of the factors Erdogan is struggling with here is domestic distrust of the lira, as domestic deposits have moved increasingly into US dollars in recent years and the official reserves are actually negative, as the country’s leadership burned through all of its official reserves and even some of the private banks’ reserves in an ill-fated attempt to defend against the lira weakening in recent years.

The PBOC tells banks to buy foreign currencies. Yesterday, USDCNH rose further from the three-year lows posted at the beginning of the week, as China is sending further signals that it would like to see the CNH at least not strengthen further, if not outright weaken. Overnight, the PBOC told Chinese lenders that they would need to hold more foreign currencies in reserve, a move that allows the bank to push “intervention” onto their shoulders rather than showing up in official reserves. The next key level for USDCNH is 6.400, the cycle low from back in February. Would be surprised to see any new lows for a while in USDCNH, unless the USD is weakening very broadly to new lows (and CNH would unlikely prove a leader on the strong side in that event).

Table: FX Board of G-10+CNH trend evolution and strength
Mean reversion is the name of the game in FX more than ever these days, as the recent sterling surge has now reversed, as has the move in the CNH after China first intervened rhetorically and has now followed up with the PBOC move noted above. Even the gold signal is fading at the moment, with momentum shifting against the prevailing “trend” in just about every currency.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
We noted on Monday that the CNHJPY move looked overdone and that signal has softened significantly as just about everything is mean reverting around the trend. Not much else worth commenting on until we get more notable range breaks in important pairs.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – Canada Apr. Building Permits
  • 1600 – US Fed’s Harker (non-voter) to speak
  • 1800 – US Fed Beige Book
  • 0130 – Australia Apr. Trade Balance
  • 0130 – Australia Apr. Retail Sales
  • 0145 – China May Caixin Services PMI

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


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.