FX Update: EUR jumpy on PMIs, Lagarde signaling policy review FX Update: EUR jumpy on PMIs, Lagarde signaling policy review FX Update: EUR jumpy on PMIs, Lagarde signaling policy review

FX Update: EUR jumpy on PMIs, Lagarde signaling policy review

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  Traders will want more details on the policy review promised this morning by ECB president Lagarde, but the initial reaction was mostly euro negative. As long as Lagarde is not set to double down on negative rates and traditional QE, this may eventually prove euro supportive even if the market not seeing it that way this morning.

The ECB meeting account showed a rather downbeat Governing Council that tried to gin up a feeling of “unity” among its members after discord over the restarting of QE in Draghi’s penultimate meeting at the helm. Concern in the minutes focused on the economic outlook and inflation remaining low for longer. There was a general lack of feeling that the ECB can do much about the situation, as fiscal policy is seen as a more appropriate response. It is surprising to me to see how many observers are looking for the ECB to continue chopping rates from here – when there is a widening consensus that negative rates actually become counterproductive when implemented for too long a period. Even incoming ECB president Lagarde has been out pledging a review of negative rates – and just before publishing this  piece we have Lagarde out this morning saying that Europe needs a new policy mix and that the ECB will review its strategy in the near future. The euro is actually selling off after the mixed to weakish flash November PMIs (softness only on the services side) and Lagarde’s announcement and we’ll take that at face value, but if the ECB policy focus is on fiscal policy measures and perhaps relief for banks (end of negative rates?) this could eventually prove euro positive – stay tuned. Note that Bundesbank’s Weidmann out speaking later as Lagarde also in Frankfurt today.

Yesterday saw the second slightly elevated US initial weekly jobless claims number, the first sign of such an elevation in months and with Q4 growth stumbling below a 0.5% annualized clip as per the two Fed surveys of current GDP, we wonder if the labour market weakness the bears on the US economy (we include ourselves in this lot) expect is finally ready to more consistently show up in the numbers. We won’t know until the week after next in the case of the monthly official numbers but a third weak reading next Friday. At the very short end of the US curve, we’re seeing increased activity in pricing in a Fed rate cut for the January and subsequent meetings, a compelling trade from a risk-reward angle as strong signs of a weakening US economy for the November and December data cycles could see the Fed lower rates at that meeting – even by 50 basis points if the numbers are sufficiently alarming (currently less than 20% odds of a single cut). But at the longer end of the curve, US treasuries were sharply weaker yesterday even as the equity market put in rather weak session and the USD was generally firm.

CAD firmed slightly after Bank of Canada Governor Poloz’s “fireside chat” yesterday as he generally failed to echo the degree of concern in Deputy Governor Wilkins’ speech earlier this week. He expended considerable effort fretting trade war spillover effects on Canada but argued that the economic is in a “good place overall” and is happy with the current policy rate. We argue that Canada could prove particularly vulnerable to a weakening US economy.

EURUSD weaker after a decelerating expansion in the services sector if we’re to believe the flash November PMIs out this morning and after ECB president Lagarde was out speaking this morning. The pair is down poking on the tactical support around 1.10550 again after a try at two-week highs yesterday a bearish development if a break lower holds, but the big downside pivot level is the psychological and Fibonacci support down near 1.1000, a break of which opens up for a full test of the lows and perhaps beyond.

Source: Saxo Group

The G-10 rundown

USD – the US dollar relatively firm but not sending any signal just yet, but can’t avoid doing so technically if it pulls another small leg higher here.

EUR – the euro stumbling this morning after Lagarde’s announcement. EURUSD focus on 1.1000 if weakness extends below 1.1050.

JPY – could be interesting EURJPY downside on the assumption of ECB activism, but  looks like little to differentiate EURUSD and EURJPY directionally. USDJPY hopelessly rangebound for now.

GBP – sterling suffering further weakness as flash November Services PMI dives below 50 to 48.6, the worst since just after the 2016 Brexit vote, but everything is about how the election shapes up and how profoundly Boris Johnson’s eventual fiscal impulse and capital inflows support sterling.

CHF – EURCHF pushing on 1.1000, but the technical level of note is higher at 1.1050, while USDCHF focus is on parity if the greenback mini-rally blossoms into something more.

AUD – AUDUSD looking heavy near the downside pivot around 0.6770 at times this morning. Risk appetite and the fate of the US-China trade deal likely the key drivers for whether we are pushed over the edge for a test of the lows below 0.6700.

CAD – the loonie vulnerable to weakening US data, independent of USD direction, but Canada’s Sep. Retail Sales data up later today.

NZD – AUDNZD getting into the strategic “cheap zone”, but need a negative NZD catalyst to offer confidence that we aren’t in for a bigger test lower.

SEK – EURSEK turning lower again and teasing for a break lower – is the Riksbank’s policy of getting back to zero a harbinger of what is to come from the ECB? Market certainly not playing the euro that way and would like the outlook for a firmer SEK better if EUR also firm. Riksbank’s Jansson was out this morning saying that he saw no major adverse impact from the forecast rate hike for December.  

NOK – oil prices supportive again, but need that break down through 10.00 in EURNOK to get a sense that the lows are in for the krone.

Today’s Economic Calendar Highlights (all times GMT)

  • 1300 – Germany Bundesbank’s Weidmann to speak
  • 1330 – Canada Sep. Retail Sales
  • 1445 – US Nov. Flash Markit Manufacturing and Services PMI
  • 1500 – US Final Nov. University of Michigan sentiment
  • 1600 – US Nov. Kansas City Fed



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.