FX shrugs off equity market gyrations FX shrugs off equity market gyrations FX shrugs off equity market gyrations

FX shrugs off equity market gyrations

John Hardy

Head of FX Strategy

Yesterday was an ugly session all around for global equity markets, with the major US indices suffering their worst single day sell-off in months and China following up with further downside overnight that has the major index there flirting with bear market status. The reaction function in currencies to the histrionics in equity markets was muted, perhaps in part as yield fluctuations were minimal during the episode, but perhaps also because China seems a source of growing concern, both on its exchange rate policy and on the outlook for its economy.

The CNY has devalued sharply versus the US dollar over the last couple of weeks, and more significantly, the CNY basket has also taken a large hit, suggesting  a change of attitude from China. 

The purported spark for the sell-off yesterday was the story that the Trump administration is laying groundwork to bar China from investing in US industries considered key for national security, from aerospace to robotics. Explicit denial of this story from Trump administration officials, from Secretary of the Treasury Mnuchin (more focused on denying that it was specifically focused on China) to trade adviser Navarro threw the market a lifeline.

USDJPY was the most reactive to the rise and fall of the market’s temperature yesterday, but we wake up this morning at unchanged levels while US equities are still down a couple of percentage points. A look over at US yields, where volatility was far more muted than in equities (telling?), suggests that the JPY will take its lead from yields more than risk appetite here.


The EURUSD reaction to the dovish European Central Bank has entirely failed to follow up with further downside after the enormous capitulation on the day of the meeting itself and has now crept back to the last arguable local resistance levels subsequent to that move. One more surge higher and the sell-off looks fully broken and bulls may come out of hiding for a look higher – for now the 61.8% Fibo retracement was the exact high for the cycle this morning.

We argue in our upcoming Quarterly Outlook that the trade war theme is a powerful driver of a weaker US dollar. Still, there is considerable wood to chop here to get the chart pointed back higher, starting with the blasting out of the local range and then an eventual move above the 1.2000 level. Given the low energy of this market, barring some major development (for example, along EU existential lines), the risk is that we settle into a summer range.

Source: Saxo Bank

The G-10 rundown

USD – the greenback treading water here and looking rather weak in its inability to gain more traction from weak global risk appetite yesterday. But nothing is broken just yet – watching EURUSD 1.1700-50 and USDJPY 109.50-00 areas for signs that the rally has faltered. 

EUR – the euro’s ability to rally despite the recent ECB meeting and despite ugly developments in EU existential metrics (Italian two-year BTP yield back to 100 bps) suggests the risk of further upside, or at least resilience, in our book. Note EURGBP banging around at the top of the range and the EURUSD thoughts above. The next week or two looks pivotal for the EU over this week’s summit and the follow-up from the CDU-CSU showdown in Germany over the migration issue.

JPY – the yen oddly sidelined despite notable gyrations yesterday. It’s a bit disquieting not to see a stronger JPY given the weak risk appetite, but the market’s confusion on what to do with the yen on the trade war theme (ugly for the Japanese economy and its large external surpluses) and the lack of volatility in bond yields yesterday.

GBP – sterling on the defensive against a resilient Euro as EURGBP eyes the 200-day moving average and the top of the range of the last few months. My colleague Peter points out the ugly practical implications that will result for UK based manufacturers like Honda if the UK is excluded from the EU customs union as described in an FT article (paywall). 

CHF – the rise in EU existential stress not weighing on EURCHF yesterday, so apparently higher levels of pain needed for CHF upside implications. This underlines the importance of the 1.1500 pivot level. 

AUD – AUDUSD still looks heavy, and China devaluation concerns and more important, risk off, are hardly the stuff of an AUD rally, so we continue to look lower for AUDUSD as long as we remain below 0.7500-ish. 

CAD – similar outlook for CAD here, although the impressive bounce in the WTI crude benchmark offers a bit of a headwind for CAD bears. USDCAD trend support is 1.3100-50.

NZD – an important test for the kiwi over the RBNZ meeting Thursday (late Wednesday for most of us.). Governor Orr will not wheel out a hawkish shift, but expectations are flat, so the slings and arrows of risk appetite likely providing the lead for the NZD’s direction here – we focus on downside risks.

SEK – EURSEK showing a bit of reluctance to follow through higher this morning – although weak risk appetite generally a headwind for the krona. The Riksbank next Wednesday the next event risk for SEK.

NOK – EURNOK jerking back higher on the risk-off tone across markets – risk back towards perhaps the 200-day moving average if this backdrop extends.

Upcoming Economic Calendar Highlights (all times GMT)

   • 0930 – UK BoE’s McCafferty to Speak
   • 1200 – ECB’s de Guindos to Speak
   • 1300 – US Apr. S&P CoreLogic Home Price Index
   • 1400 – US Jun. Consumer Confidence
   • 1715 – US Fed’s Bostic (Voter) to Speak
   • 1745 – US Fed’s Kaplan (Non-Voter) to Speak
   • 2245 – New Zealand Trade Balance


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.

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.