Head of FX Strategy
Summary: The US dollar rally got an extra boost on Friday from a preliminary May US University of Michigan Sentiment survey that had the double-ugly combination of a sudden spike in long-term inflation expectations and a severe and unexpected decline in the general expectations component of the survey. Treasury yields backed up and boosted the US dollar and took down the JPY and the kiwi, which had just reported a soft inflation expectations survey figure.
Today's Saxo Market Call podcast
Today's Global Market Quick Take: Europe from the Saxo Strategy Team
FX Trading focus:
Bias shifts today:
US inflation expectations accelerate USD rally, but that rally already easing.
The preliminary May University of Michigan sentiment offered up a pair of ugly surprises, as the long-term, 5-10 year inflation expectations survey suddenly jumped to 3.2% after staying in the range of 3.0% and lower save for two 3.1% readings in 2022. The June 2022 reading initially read 3.3%, we should recall, before the final survey for that month saw it revised lower to 3.1%, matching the level from January of last year and the highest since 2011 until yesterday’s figure. It’s of course just a survey, and other surveys are conflicting, including the Cleveland Fed’s 10-year expected inflation, which is at 2.15%, although that survey uses market-based measures as well as survey, and the surveys are of “professional forecasters” as opposed to the University of Michigan’s surveys of “consumers”. In any case, Friday is the latest example of random data points leading the market around by the nose, only to not develop into anything sold because the next data point may say the opposite. The trouble is that now the Fed has likely reached a plateau for now on its policy, the market is impatient for a next step that may not come until we have had solid evidence of the one or the other scenario (cruising speed or recessionary risks rising) developing over the next couple of data cycles. The next data point of note is tomorrow’s April US Retail Sales report, expected rather weak after two negative in February and March that came after the huge January surge, in part on mild weather.
Chart: NZDUSD
Last Thursday we wrote about sterling possibly becoming the latest victim of the “mean reversion game” on the Bank of England event risk. That indeed was the case for the next couple of sessions. Since then, the kiwi suffered an even more severe case of whiplash after a Q2 NZ inflation expectations survey came in softer than expected a day before the US University of Michigan survey. The double whammy deflated NZDUSD all the way back to mid-range, an impressively bearish reversal only made less bearish by the long-standing range that this pair has found itself in that stretches back many months. A deepening gloom and more risk aversion is likely needed to get NZDUSD challenging the range lows below 0.6100, while this latest sell-off has dealt serious damage to any hopes that a rally would extend on the attempt above the April pivot high of 0.6379.
Table: FX Board of G10 and CNH trend evolution and strength.
The NZD got marked down from strongest to middle range in just a couple of short session, while the US dollar is vying for a new uptrend but has so far merely consolidated much of the prior downtrend without showing real upside trending behaviour anywhere.
Table: FX Board Trend Scoreboard for individual pairs.
EURSEK popped a bit higher on the softer than expected Swedish core inflation data reported today – it is in pivotal either/or area around 11.30. Note that GBPUSD is leaning close to flipping negative, but needs to show a close down through 1.2450-1.2400 with important UK earnings, claims and jobs data up tomorrow morning.
Upcoming Economic Calendar Highlights
A new fragmented world order can render some of today's infrastructure obselete, but it also calls for massive new investments across the globe, which requires a new set of strategic and tactical investment strategies.
Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
