FX Update: Risk-on boosted further on possible coronavirus treatment FX Update: Risk-on boosted further on possible coronavirus treatment FX Update: Risk-on boosted further on possible coronavirus treatment

FX Update: Risk-on boosted further on possible coronavirus treatment

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  Markets were already in comeback mode yesterday before the news broke this morning on Chinese TV that researchers have found a drug for treating coronavirus victims. The risk comeback was almost already complete in equities, but commodities and currencies will have plenty more to price in if conditions on the ground on the coronavirus improve.

Breaking news this morning from China on a possible treatment option for the coronavirus came in about halfway through the composition of this morning’s update and has boosted risk-correlated assets and currencies strongly – we’ll refrain from going all in with the kneejerk reaction, but certainly there is further space within the bond yield-sensitive currencies (JPY and CHF) as well as risk- and commodity-correlated G10 small and EM currencies to rally here on this news if the facts on the ground soon confirm that we are getting past peak coronavirus concerns. We remain cautious.

A zany day yesterday for risk on, especially for equity markets, but with more participation this time from commodities and currencies, as EM bounced strongly – USDMXN closing close to cycle lows, for example – and on the flip-side, the JPY sent reeling after its recent surge as bond markets consolidated lower. We’re having a hard time pulling together the kind of confidence that equity markets seem to be trying to express here, preferring to keep an eye on long US treasuries, where the rise in yields has so far proven very modest and the still-flat US yield curve suggests the Fed remains behind the curve, its ongoing operations notwithstanding. Yesterday saw a $30 billion two-week repo heavily oversubscribed by almost another $30 billion – suggesting USD liquidity concerns are ongoing.

The Swedish krona has bounced the most among the G10 smalls after EURSEK extended above the important 10.60+ since last Friday – besides the comeback in risk appetite, we have a head turning couple of PMI’s from the country this week that are suddenly changing the narrative a bit for the currency, first with the surge to 51.5 in the January Manufacturing PMI and this morning with the Services PMI likewise with a print of 52.5 vs. 48.7 in December. EURSEK has tumbled back well below 10.60 and a  further thaw in coronavirus fears could see it push well back into the former range toward 10.41, even if we doubt much potential for the  currency until a more determined fiscal stimulus expectations arrive for Sweden and the EU.

No real takeaways yet from the partial (71%) results from the botched Iowa caucuses in the US – always a weird primary relative to the other states’ and possibly history for future elections. Pete Buttigieg looks to have beat Sanders by a small margin for the win, but he is polling at a fraction of his levels in Iowa in most other states and the race still looks a contest between Biden and Sanders. More soon.

The kiwi has been on its back foot a bit in the crosses after the employment and wages data disappointed overnight, with the  QoQ employment change a 0.0% and the  average hourly earnings rising only +0.1% QoQ as well. The coronavirus treatment news has boosted the NZDUSD off the lows this morning, but we will continue to watch this pair for the risk of a full breakdown toward the sub-0.6250 cycle lows if it re-approaches and breaks back below 0.6450 – a neckline-like area on the way up.

Source: Saxo Group

The G-10 rundown

USD – the big dollar seems so inert to anything at the moment – we merely note that the Fed remains behind the curve as inferred from the flat US yield curve and will watch key incoming data through the end of this week for reactivity (ISM Non-manufacturing and ADP employment change today, NFPs on Friday).

EUR – the euro rather inert here as well – trading like a safe haven currency in the crosses and could be an interesting one if the markets decide the coronavirus situation was not what we should fear, but a real struggle in the global growth outlook.

JPY – the yen dropped sharply yesterday on the double whammy of sharply higher yields and max risk-on, but we note that after the markets have settled a bit in reaction to the virus treatment claims out of China that US Treasury futures are only a hair lower.

GBP – the wily sterling is churning back and forth as we await firmer news on the EU trade deal.

CHF – a kneejerk lower in CHF on the risk on move and bond yields trading higher since yesterday, and momentum starting to wane on this recent run lower – probably need severe risk off to get the pair to new lows.

AUD – the Aussie bouncing strongly in the crosses this morning – but plenty more wood to chop to get the currency in the clear for bulls.

CAD – USDCAD has found resistance near the top of the range but we need more than  risk on to get the pair back lower – we need a much stronger North American oil price as the US WTI benchmark has been below 50.00 on this latest slide.

NZD – on its back foot and would look more to AUDNZD for interest in expressing a weaker NZD than in NZDUSD if Chinese markets take heart from the latest developments.

SEK – the stronger Swedish PMI’s and then this morning’s coronavirus news have seen EURSEK reverse  the recent rally – making life more comfortable for bears looking for a retest of the sub-10.45 lows if we can close today well below 10.60.

NOK – a huge boost to the NOK from the backdrop, especially on this morning’s news on possible coronavirus treatment, but need a solid turnaround in crude and considerable further NOK rally to wipe out the damage done to NOK on this latest slide from below 9.90 to the 10.25+ of earlier this week.

Today’s Economic  Calendar Highlights (all times GMT)

  • 1215 – ECB President Lagarde to Speak
  • 1315 – US Jan. ADP Employment Change
  • 1330 – US Dec Trade Balance
  • 1330 – Canada Dec. Int’l Merchandise Trade
  • 1500 – US Jan. ISM Non-manufacturing
  • 1530 – US Weekly DoE Crude Oil and Product Inventories
  • 1730 – Canada Bank of Canada’s Wilkins speaks
  • Time? Brazil Selic Rate
  • 0030 – Australia Dec. Retail Sales
  • 0030 – Australia Q4 NAB Business Confidence

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.