FX Update: USD on edge ahead of the US CPI data tomorrow. FX Update: USD on edge ahead of the US CPI data tomorrow. FX Update: USD on edge ahead of the US CPI data tomorrow.

FX Update: USD on edge ahead of the US CPI data tomorrow.

John Hardy

Head of FX Strategy

Summary:  Market sentiment improved further yesterday before dipping slightly overnight, as China Covid cases are on the rise, pushing back against hopes for a lifting of Covid restrictions. In the US mid-term elections, Democrats are slightly outperforming expectations, possibly set to retain control of the Senate even if Republicans look set to take narrow control of the House of Representatives.

FX Trading focus: Next test for struggling USD over tomorrow’s US CPI data.

The US mid-term election results are still rolling in this morning in Europe, with the Republicans set to take a small majority in the House and the Senate outcome looking at risk of riding on the outcome of a Georgia run-off election on December 6th as neither candidate looks set to achieve the 50% required for elections there. Remember that we had a similar setup after the 2020 election when two Senate races in Georgia were only decided in a January 5 run-off. There are no real market conclusions from the outcome, even if the Georgia race gives the Republicans a majority in the Senate, as the only scenario that would have guaranteed dramatic potential for fiscal policy would have been the Democrats surprisingly retaining both houses. Other conclusions: Trump is a liability for the Republican party, which likely would have done far better without his involvement, and forensic studies of split-ticket voting will likely confirm this, and it will be interesting to see if this deters his possible renewed ambitions for the presidency. Finally: razor thin Georgia results keep alive the narratives around election fraud, etc. Can the US move beyond its dysfunctional elections by 2024 or will the republic face an existential test in that election cycle?

Back to incoming data, with tomorrow’s US October CPI in focus. Let’s recall that the September CPI data point was a real shocker as many qualified slicers and dicers of the data were looking for a deceleration in the core data rather than the acceleration we got. That has me leaning for a slightly softer release tomorrow. But I am far more interested in the nature of the market reaction. As I have discussed the last couple of days on the Saxo Market Call podcast, I find the most interesting test for the US dollar one in which we see inflation decelerating and US treasury yields perhaps easing a bit lower, but in which we also see risk sentiment weak as equity and bond markets are starting to decouple, as equities begin to fret recession rather than being merely led around by the nose by the treasury market. If that is the scenario we get and the USD weakens, then I think USD weakness can extend a bit more forcefully for a time, if not, then the USD could yet reject this breakdown attempt. I withhold judgement for now, as the USD has not yet broken down. But the easiest thing to do is to simply judge what happens on the charts in the wake of the data release (not knee-jerk, but how the day closes), as we have a number of clear-cut levels in play for the major USD pairs.


USDJPY has traditionally been a strong focus over US data surprises over the years and will be in focus with the macro event risk of the week, if not the month, coming up tomorrow in the form of the US October CPI release. Reaction in yields and risk sentiment are both worth watching as I have cooked up some thoughts of late (see above) on whether US treasury markets and equity markets could move out of correlation, i.e., that risk sentiment may have a hard time celebrating a drop in treasury yields. So, a weaker than expected US CPI report together with falling treasury yields, but also together with weak risk sentiment could provide the strongest support for the JPY here in a broad sense, though it might be felt more forcefully in JPY crosses. Regardless, if the JPY finds bids tomorrow, the 145.00 level will be a huge focus in USDJPY.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
The USD is clearly down, but will only be out on sticking further weakness in the wake of the US CPI release tomorrow. Elsewhere, note the sterling momentum turning badly south and SEK trying to look higher, not a surprise given European equities having rallied vertically for weeks – looking a bit much.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
EURGBP is one to focus on around the 0.8800 level. JPY crosses are interesting in places as well as yields have consolidated a bit lower – look at the 165 area in GBPJPY, for example. But it is all about key USD levels after the US data tomorrow, including 1.0100 in EURUSD, 0.6522 in AUDUSD, etc…

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1200 – Mexico Oct. CPI
  • 1300 – UK Bank of England’s Haskel to speak
  • 1530 – EIA's Weekly Crude and Fuel Stock Report
  • 1630 – UK Bank of England’s Cunliffe to speak
  • 1700 – World Agriculture Supply and Demand Estimates (WASDE)
  • 0001 – UK Oct. RICS House Price Balance
  • 0100 – US Fed’s Kashkari (Voter 2023) to speak


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