FX Update: Market hoping for a goldilocks setup as energy spike reverses. FX Update: Market hoping for a goldilocks setup as energy spike reverses. FX Update: Market hoping for a goldilocks setup as energy spike reverses.

FX Update: Market hoping for a goldilocks setup as energy spike reverses.

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Markets are in a positive mood as the energy price spike has partially reversed, the US debt ceiling issue looks to have been punted down the road a couple of months, and as long term yields are orderly. Hard to believe that the market can have its cake and eat it too here, but the US dollar is on its back foot here on the combination of risk sentiment reviving while US longer dated US treasury yields remain below recent highs.

FX Trading focus: Market hoping for a goldilocks vibe.

The powerful reversal in energy prices after Russian president Vladimir Putin claimed yesterday that Russia is ready to supply the market with gas has dramatically improved sentiment in Europe and in generally risk-correlated FX, although you can’t see much of that improvement in the euro, where the dovish ECB holds back upside potential. Also supportive of risk sentiment is the US Senate apparently readying to punt the debt ceiling issue out to December, while treasury yields have remained orderly at the long end of the yield curve despite the general relief and the very strong Sep. US ADP private payrolls change yesterday, at +568k. That strong report may nudge expectations higher for the official Nonfarm payrolls change number tomorrow, which, together with the Average Hourly Earnings data is the next test for whether a kind of brief “Goldilocks” interlude can be achieved here in which yields remain tame at the long end of the curve and the energy crunch story fades for now, helping to relieve concerns of stagflationary outcomes.

I’m not a fan of the idea – but we just may have a window if the US jobs report is sufficiently boring. Surely a reasonably strong US jobs report surely sees a fresh pull higher in US yields? Let’s see, Powell spelled out at the press conference of the September FOMC meeting that the Fed doesn’t need a particularly strong report tomorrow to move forward with a QE taper, but if we get a very strong report, together with much higher than expected average hourly earnings, this could affect the pace of tapering and jolt this market.

The ECB is said to be studying how to continue doing QE beyond the telegraphed expiry date of March of next year to their PEPP program. Maybe it should consider funding some resilience in the EU’s energy supply system, although given Lagarde’s focus on the climate, linking the next round(s) of QE to the climate agenda wouldn’t be a huge surprise.

Sterling is on the brink of key resistance in GBPUSD as the 1.3600+ area the was so important on the way down has been in play in recent sessions. Prime Minister Boris Johnson’s speech yesterday seemed to make a solid impression on BoE rate expectations as he talked up the Conservative “Build Back Better” and “Leveling up” platform. Just over the last few weeks, UK 2-year rates have outpaced EU rates by more than 20 basis points as rate hike anticipation from the BoE rises. The UK-EU spread is around 118 basis points today and at its widest level in more than two years (the high in this spread since way back in 2007 is a mere 138 basis points – we’re almost there). Against the US, the UK 2-year spread is also widening – with the UK-US rate spread rising a further 15 basis points in under a month to reach the current level near 35 basis points. I doubt sterling is responding as much to these developments as it is to the relief on the energy crunch/risk sentiment side of the equation, which seems to dominate the correlation with GBPUSD more so than yield spreads, even if the latter certainly don’t hurt and get more focus if risk sentiment continues to improve. Regardless – the 1.3600-50 area in GBPUSD and the 0.8450-0.8500 zone look pivotal for whether sterling can achieve a new lift-off in coming days and week or whether it is brushed back lower on the fears that have seen it underperforming the rate rise developments this year – including Brexit uncertainties, lower real rates, and capacity constraints in energy and transport and supply chain infrastructure. The huge correction in energy prices is especially a relief for the import-reliant UK.

Source: Saxo Group

Interesting to note RUB rising as gas prices are crushed – the market rates the overture from Putin to supply gas (clearly contingent on NordStream 2 pipeline becoming operational) far higher than the fact that oil and especially gas prices have cratered in the wake of his move yesterday. USDRUB trades below the September lows this morning and only has the June low-water market remaining as a range support down just above 71.5.

Poland surprises with a rate hike – 50 more bps in November? The inflationary pressure was apparently too much to bear for National Bank of Poland, which surprised the market yesterday with a rate hike of 40 basis points to take the policy rate to 0.50%. This came after the bank had signaled that it would wait for the November meeting and new forecasts on inflation before moving. It also came after the minutes of the prior meeting showed a motion to hike by 190 basis points to take the rate to 2.00% in one go was voted down and shortly after Governor Glapinski said earlier this week that policy normalization could be on hold until as long as 2023. Huh? Last Friday, the September CPI headline reading was a heady 5.8% year-on-year versus 5.3% in August and the NBP apparently decided it was simply time to act, perhaps to cover political risks as some have pointed out that just hours before the announcement, Poland’s prime minister said the inflation is “worrisome”. Guidance from the meeting was generally lacking on further hikes, though a reference to continuing the bank’s bond-buying program was removed.

Table: FX Board of G10 and CNH trend evolution and strength
Not much life in the Euro even with relief on the energy price front since yesterday. Sterling is doing what it can to remain interesting – needs another half percent or a bit more versus the USD and EUR to turn the tables. Elsewhere, CAD and NOK strength holding on reasonably well, but could be in for rough sailing if the energy reversal deepens.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
Note AUDUSD vying to reverse to an upside move as it trades near local 0.7300 area resistance.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – US Weekly Initial Jobless Claims and Continuing Claims
  • 1300 – ECB Chief Economist Lane to speak
  • 1300 – ECB's Schnabel to speak
  • 1400 – Canada Sep. Ivey PMI
  • 1430 – DOE's Weekly Natural Gas Storage Change
  • 1545 – US Fed’s Mester (non-voter) to speak
  • 0030 – Australia RBA Financial Stability Review
  • 0145 – China Caixin Sep. 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.