FX Update: Whiplash as EU energy crisis steals back the narrative. FX Update: Whiplash as EU energy crisis steals back the narrative. FX Update: Whiplash as EU energy crisis steals back the narrative.

FX Update: Whiplash as EU energy crisis steals back the narrative.

John Hardy

Head of FX Strategy

Summary:  The US dollar tried to weaken Friday as the August employment report proved benign for risk sentiment, with US treasury yields easing lower. But sentiment quickly headed south and the bid dollar came roaring back after Russia announced it would not restart flows of natural gas through a key pipeline into Germany. As long as the energy situation continues to hang over the EU, and especially the UK outlook, European FX will have a hard time finding a floor.

FX Trading focus: USD springs back on fresh EU energy woes

The US August employment report was a mixed bag, with payrolls slightly softer than expected if we include the -107k of net revisions of the prior two months of data, and the Average Hourly Earnings coming in softer despite a 0.1 drop in the Average Weekly Hours suggested no fresh inflationary pressure from wages. The official Unemployment Rate rising to 3.7% was misinterpreted, perhaps, as is often the case, with a strong Household survey actually showing that 442k more Americans were employed in the month, but the rate rose because of a 0.3% rise in the Participation Rate (suggesting more looking for work).

Alas, as US treasury yields eased lower in the wake of the US jobs report, risk sentiment was buoyant and the US dollar sold off rather sharply, until…Russia announced it had conveniently found a leak in the Nord Stream I pipeline that was purportedly down for a few days maintenance and saying that natural gas flows through that pipeline would not resume on Saturday as planned. Clearly this is the latest attempt to leverage gas deliveries as retaliation for EU countries’ support of Ukraine in its war against the Russian invasion. EURUSD and GBPUSD both traded to new lows this morning and may have a hard time finding a floor until either the Fed is back in easing mode or the energy situation clears in a sustainable fashion for Europe, neither of which looks likely in the near future.

Europe is scrambling to limit the damage from higher prices to sectors of the economy, but moves to cap prices will support demand more than would otherwise would be the case, and that will have to mean rationing of supply as long as the actual physical deliveries of gas/oil, etc. are limited. An EU summit in Brussels is set for Friday on energy policy. The UK situation is more dire still than that for mainland Europe because of its political isolation and its lack of a buffer after the country took the disastrous decision to close a key storage site called Rough in the North Sea in 2017. The UK is scrambling to reopen that site, but it will have to be filled with very expensive gas indeed, assuming any excess seaborne LNG can be locked down for delivery.

Today in the UK, the Conservative party has voted for Liz Truss as the new party leader, making her the UK’s next Prime Minister. Her promises range from quick action on energy security to alleviating the cost of living crisis for the hardest hit by price rises, all while cutting corporate and other taxes. It’s a recipe for ballooning fiscal deficits, an issue that is already an ingredient in sterling’s steep fall this year, so an even steeper recession is in the wings, either from a drop in real GDP due to soaring inflation aggravated by further sterling declines or as demand is crushed by a steep recession due to the need for the Bank of England to accelerate its pace of rate hikes or more likely a combination of the two. Longer term, investments in fracking shale gas and new North Sea exploration could pay dividends. Watching EURGBP closely in addition to the tumbling GBPUSD as the former has traded up into the top of the well established range since Brexit became formal in early 2021. Tactical relief rally possible.

EURUSD looked ready to test resistance after the US jobs report on Friday, but now finds itself having tested new lows for the cycle this morning, something it may continue to do as long as EU energy security woes continue to drive concerns for an ugly recession this winter amidst power/gas rationing. The EU summit this Friday is the key focus, far more than whether the ECB hikes 75 basis points as it nearly priced in now, with another 100+ basis points priced in before year end (implied rate for December meeting is 1.66%. Technically, the pair needs to set and hold these new lows near and below 0.9900 early this week, otherwise we risk backing up into the parity-plus range in the short term.

Source: Saxo Group

The RBA meets tonight and is expected to hike 50 basis points for the fourth consecutive time, with the market pricing a deceleration in rate hikes from here, but still looking for more rate hikes through year-end. A Melbourne Institute inflation figure out overnight showed inflation down -0.5% MoM and up +4.9% Year-on-year in August, driving some Aussie volatility overnight. The AUDNZD pair is an interesting one for relatively pricing of the currency. If the pair is set to carve out a new range since before 2013 due to current account considerations (soaring record surpluses in Australia as opposed to worst in decades deficits in New Zealand, it needs to get back on the rally track after tonight’s meeting.

Overnight, China cut the forex reserve ratio in a bid to support the yuan after it dropped to a new low versus the US dollar overnight. The move knocked USDCNH back from above 6.95 to near 6.93.

Table: FX Board of G10 and CNH trend evolution and strength.
USD strength remains the most prominent trend, while sterling weakness is the most prominent . Not very impressed with the JPY today, as USDJPY continues to trade well north of 140.00 even after US yields dropped Friday.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Note Liz Truss taking power as our trend measure for GBPCHF has been 60 consecutive days in the negative, the most persistent trend in FX. Let’s see if the EURCHF positive flip can hold for long: doubtful. CNHJPY, meanwhile, remains in a positive trend and the pair is well above 20.00 – lots of tension there.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1530 – UK Bank of England’s Catherine Mann to speak
  • 2301 – UK Aug. BRC Sales Like-for-like
  • 0430 – Australia RBA Cash Rate Target Announcement

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.