FX Update: Odd race to bottom for NZD, JPY and USD FX Update: Odd race to bottom for NZD, JPY and USD FX Update: Odd race to bottom for NZD, JPY and USD

FX Update: Odd race to bottom for NZD, JPY and USD

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The interesting injection of volatility elsewhere this week revealed once again that FX is slow to react to inter-market developments. Subplots within the G10 abound however, as the USD and JPY race are joined in the race to the bottom in recent sessions by the kiwi, while European currencies, led by NOK, have risen to the top.

The turmoil across markets earlier this week – most likely triggered by a steep back-up in US yields across the curve and enhanced by a train wreck of position unwinding in the overbought precious metals market – showed that FX remains a laggard in responding to market stimuli, extending the evidence of the same since the post-March and April panic phase of the COVID-19 crisis. The strong rise in US yields was a chance for the US dollar to shine, but it largely failed to do so, merely backing up slightly before over again yesterday and into today as risk appetite staged a comeback and the slide in bonds and especially precious metals prices yielded to a bounce. Yesterday’s monster $38 billion 10-year treasury auction went off smoothly and is followed later today by a large 30-year auction.

Elsewhere, the rise in yields has proven more decisive for the Japanese yen, as USDJPY has now fully rejected the recent breakdown attempt (only placing it back in the range limbo higher and needing some heavy lifting before we can call this anything but a neutralization of downside threat). With the euro beating a path higher again this morning, this has EURJPY on a rocket launch trajectory and at its highest levels since early 2019, a move I find a bit mystifying. EURUSD for its part is launching a fresh bid at the cycle highs as we discuss in the chart comment below.

On the strong side, we find NOK leading the G-10 pack higher, followed by CAD, both of which are soaring despite only modest support from a bounce-back in oil prices (though many may see vaccine hopes feeding most quickly into oil prices on the assumption that a supply shock could await if demand normalizes more quickly than expected.)

Not sure where to look for a catalyst or fresh developments, but the USD bears are having a hard time finding fresh momentum, EURUSD looks crowded, and NZD downside interesting on the AUDNZD break higher and the RBNZ on the warpath against its own currency.

The strength in the euro has broadened notably – particularly in EURJPY, but EURUSD deserves focus on its fourth attempt today back toward the key 1.1900+ area highs. The latest currency futures positioning data shows speculative longs at a record +181k contracts, a very extended position. Sometimes, extremes in positioning coincide with extremes in price, but there have also been examples in which the trend continues with narrower participation – this was most notable in the July 2012 low in EURUSD, where positioning had contracted notably from the June extremes even as EURUSD trended to new local lows ahead of Draghi’s famous “whatever it takes”. The largest net positions in history have been on the short side – as large as -227k contracts. Technically, the 1.1700 area has corralled the sell-offs effectively on two occasions and that leaves us sandwiched between 1.1900 and 1.1700 awaiting developments, with the ultimate trend test in the 1.1500 area lower if 1.1615 fails. Fundamentally, we are struggling with the immediate catalyst for further USD weakness to extend here without some more notable catalyst.

Source: Saxo Group

The G-10 rundown

USD – the back-up in bond yields earlier this week offered a chance for the US dollar to shine, though we never got more than a one-session hitch in equity markets, so the narrative that the US will lead the world to reflation has not yet been properly challenged. Yesterday’s high US CPI reading, if it is a sign of things to come and does not see other countries following suit, in fact amplifies the US negative real rates story (risk of inflation rising while policy rate seen rising only very far down the road.).

EUR – the chief hurdle here for EURUSD bulls is the level of positioning, which suggests the going higher could be heavy here even if the trend continues in that direction. As well, the lack of Fed balance sheet growth is an off-note in the background - but bears have no technical case for a sell-off just yet. 

JPY – the yen scraping bottom as today’s session developed as safe-haven bonds are weakening ahead of the US 30-year auction later today.

GBP – positive noises from UK Brexit negotiator David Frost on the ability to reach agreement on post-Brexit transition period in September, but EURGBP is stuck in the middle of the range established as far back as June after the UK reported the worst GDP growth of any major economy from COVID-19.

CHF – EURCHF is treading water – interesting to note the relative stability of CHF during the market volatility earlier this week – possibly a sign that CHF less likely to trade as a safe haven from here – especially when precious metals (and possibly US stocks – gold and tech stocks are large SNB holdings) volatility is the source of concern.

AUD – the Aussie can’t catch a major impulse in either direction here – iron ore and other metals prices have stalled out – technical rout danger only picks up, however, if AUDUSD punches down through 0.7050-00.

CAD – strength here beginning to look overdone – though I think the AUDCAD repricing and even more so NZDCAD repricing looks fair. Next area for USDCAD is 1.3000 if this move below 1.3350 sticks.

NZD – the weakness well deserved and could extend with COVID-19 back in New Zealand and requiring an Auckland shutdown (was the outbreak triggered by refrigerated product shipments?) and with the RBNZ this week declaring that it is in “active preparation” for negative rates.

SEK – the EURSEK sell-off pausing for breath near the key sub-10.22 range lows, needing constant risk sentiment and vaccine hopes to support an extension toward 10.00. Note that 200-week moving average (currently 10.21) has come into view – EURSEK broke above this average after a couple of false starts in early 2014 (the average below 9.00 at the time).

NOK – the 200-day moving average in EURNOK has given away again, but 10.50 the likely psychological focus as we only have one daily close below that level since the COVID-19 crude oil meltdown.


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.