FX Update: Euro pounding on breakdown levels ahead of EU council meet FX Update: Euro pounding on breakdown levels ahead of EU council meet FX Update: Euro pounding on breakdown levels ahead of EU council meet

FX Update: Euro pounding on breakdown levels ahead of EU council meet

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The US dollar is back on the bid together with the Japanese yen as the euro dips ahead of a crucial EU council meeting where the market is looking for fundamental agreement on principles more than details on a technical solution. EU existential strains are clearly at stake and major EUR pairs are weighing on support ahead of the meeting.

The EU Council meeting today will dominate market attention for global markets, as the tail risk outcomes would be sufficiently large to wash over global markets. A Politico “Playbook” offers a run through of the many confusing moving parts here. As we have stated before and on this morning’s Saxo Market Call podcast, we are looking for signaling on the degree of solidarity more than the technical nature of whatever is agreed today. The setup certainly appears to be one of a debate on basic principles and mechanisms of funding rather than the prospects for a package of any given magnitude. The stakes could not be bigger, and the market will not take kind to an obvious fudge, much less an Italy or a Spain walking out of the talks in a huff. The most positive scenario would be the EU lining up to support Spain’s creative solution. The meeting is scheduled to begin at 1300 GMT.


Already this morning, we have EURUSD breaking below 1.0800 after an apocalyptic set of April flash PMIs (is there really an information value in these, given the known fact of a total shutdown?. The May data cycle will be the first one of any relevance for most countries, although after today’s US weekly initial jobless claims, that weekly data series will gain increasing relevance as portions of the US are trying to begin opening up already now.


Bad news almost all around on Covid19, as the Roche CEO poured cold water on the hopes for the rapid expansion of quality testing and the timeline for a vaccine, and as China is struggling with new outbreaks that are forcing regional shutdowns.




CEE watchers should note that things are getting interesting in Hungary and Poland as the two countries look for ways to fund their responses to the Covid19 crisis. Poland has funded some of its spending with rather opaque “private placements” of billions in spending that may be a kind of stealth monetization – watching the PLN exchange rate closely, as well as spreads on sovereign debt denominated in EUR (few signs of strain in recent days). Hungary, meanwhile, may be looking to tap global markets to the tune of EUR 4 billion, an interesting test of the market’s assessment of the country’s creditworthiness after it has slipped into one-man rule by decree. Coming into this crisis, both of the countries were running steeply negative real rates, with CPI rising above 4% while policy rates were well below, and in Poland’s case, have been cut further.


EURUSD is having a look below the key 1.0800 area, although the recent nominal lows have not yet been broken and the key price action will be in the wake of whatever takes place at today’s EU Council meeting. A close below together with a clear sense of aggravated existential strains arguably opens up for a test of the 1.0350 lows and potentially parity eventually.

Source: Saxo Group

The G-10 rundown

USD – the USD neither her nor there, but looking firm against the weakest EM and against a struggling euro this morning. Watching the correlation with risk appetite after the chunky sell-off earlier this week failed to prompt notable USD upside.

EUR – everything at stake for the euro as noted above over the EU Council meeting today – key technical levels in EURUSD and EURJPY already under fire ahead of the meeting.

JPY – the yen picking up a bid here and there this morning as the market trades on a nervous footing ahead of the EU council meeting – most focus on EURJPY, therefore, and the 116.00-25 area.

GBP – sterling firmer against the weak euro, even as the UK Apr. flash Services PMI at 12.3 was somehow not the lowest PMI of the day, with that honor going to France’s flash Services PMI reading of 10.4.

CHF – the SNB may only be able to slow the progress lower if the euro breaks weaker still after today’s EU Council meeting – 1.0500 may be serving as some kind of technical level as well.

AUD – seeing a lot of macro consensus out there that any recovery is likely to boost basic materials first on infrastructure spending and otherwise, may be more of a driver of solid AUD outperformance in some of the crosses as there is little cheer when looking at risks for Australian stocks (especially if big banks suspend their dividends).

CAD – still have huge concerns for the cycle for Canada, but USDCAD is doing nothing here and failed to rally more forcefully despite the most apocalyptic action in crude imaginable (so far). Hopes that USD liquidity is anaesthetizing this market are the likely driver of lack of more compelling price action.

NZD – New Zealand credit card spending dropped -9.1% month-on-month in March, about matching the Retail Sales drop in the US for the month of March. AUDNZD has been quick to build a base and briefly posted a new high overnight (see possible drivers above in AUD). 1.0500 appears the support there.

SEK – EURSEK price action putting us to sleep – Sweden struggling close to capacity limits in health system if the Covid19 outbreak worsens on the nation’s rather unique, more open shutdown policy. Otherwise, curious to see how the market treats the EU council meeting outcome

NOK – EURNOK still slightly north of 11.50 level this morning despite crude oil price bounce yesterday – the highs may be in here local if the lows are in for longer-dated crude (track something like December 2021 crude more than next few front months), though we are unwilling to make that call.

Economic Calendar Highlights (times GMT)

  • 1230 – US Weekly Initial Jobless Claims
  • 1300 – EU Council meeting starts
  • 1345 – US Markit flash Apr. PMI
  • 1400 – US Mar. New Home Sales
  • 1500 – US Apr. Kansas City Manufacturing Survey


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.