Markets showing dreaded risk-on, risk-off tendencies Markets showing dreaded risk-on, risk-off tendencies Markets showing dreaded risk-on, risk-off tendencies

Markets showing dreaded risk-on, risk-off tendencies

John Hardy

Head of FX Strategy

It appears that Turkey’s authorities are looking at the 7.00 are in USDTRY as an intervention level, or at least that is the tactical line in the sand that developed over yesterday’s trading session. But it is also the level around which some have calculated that Turkish banks effectively run dry of excess capital to service foreign currency denominated obligations. 

The most recent Turkish debt auctions and trading in the second hand market are pricing Turkish debt at around 25% at the short end of the curve and 21% out to 10 years. This makes a mockery of the policy rate of 17.75%. 

What Turkish president Erdogan’s plans are from here is unclear, but the risk is growing of a geopolitical shift and abnegation of foreign debts is growing and a chaotic default and/or capital controls will test the robustness of the global financial system. 

Today sees a busy Erdogan schedule and for interesting potential geopolitical developments, do note that Russian foreign minister Lavrov is in Turkey and will hold a joint press conference with the Turkish foreign minister around lunch time (possibly 12:30 local time) today. 

For the most fire-and-brimstone view of where this is all going, have a look at Russell Napier’s piece posted on ZeroHedge. Others are less concerned. We’ll take a wait-and-see approach, but the Rubicon has been crossed for Turkey’s economy and the chief question is not the magnitude of the Turkish situation itself, but the degree to which the contagion from Turkey challenges the narrative and triggers a reassessment of counterparty and financial risk across other emerging markets. 

As well, global confidence risks getting shaken to its core if the Turkish situation triggers concern that China will be forced to devalue its currency versus the USD.

Elsewhere, Italy’s yields are ratcheting higher and yesterday’s closing yield for the two-year at 1.33% is the highest in about two months. Italy’s new leadership is casting about in an Erdogan-esque manner for blaming evil speculators for Italy’s high funding costs. At the same time, they are insisting on the need for a populist-driven fiscal expansion while making noise about reducing Italy’s debt load. Leaving the euro and defaulting is the only way Italy will achieve a reduction in its real debt load (or launching a parallel currency that devalues via the exchange rate).

Chart: EURUSD (weekly)

A look at potential targets for the move lower here shows that just below 1.1200 is the 61.8% retracement of the entire rally from the early 2017 low to the top earlier this year. But if the crisis intensifies to fever pitch, lower levels still are a risk, and some may be tempted to see a head and shoulder formation with a technical target closer to 1.0500. That’s a bit too much for our taste for now and we’ll simply take the tactical view that the action looks bearish as long as we trade below the 1.1500 area here.

Source: Saxo Bank

The G-10 rundown

USD – the USD squeeze higher is easing a bit this morning, but have we really seen the climax for now? We have our doubts, and further risk-off behavior could drive another spike or two of USD gains on the theme of waning USD liquidity. The signals from next weekend’s (August 24 and 25) Jackson Hole conference in the US could prove critical.

EUR – the euro oddly stable despite Italian yield spiking higher, but the minute-to-minute focus seems to be on whether TRY is up or down. Keeping a cautious stance on the single currency until morale improves and as long as we remain below 1.1500 in EURUSD .

JPY – USDJPY bouncing hard enough to make life difficult for the bears here – but more upside needed to indicate that the USD can outperform even the JPY in a risk-off/global contagion scenario.

GBP – UK data up today, but EURGBP is more about EU existential and Turkey risks on the euro side and Brexit developments on the UK side, so not sure we get a sustained reaction to today’s data releases.

CHF – EURCHF bouncing after the steep plunge as we see the lira bid in early trading this morning. The pair is a pure risk proxy and we doubt the lows have been posted just yet.

AUD – AUD remains weak despite the attempt to manufacturing a bounce in risk appetite this morning as the weak Chinese data overnight weighs on the currency.

CAD – CAD offering very low beta to the risk-on/risk-off markets and may be looking a bit more at the oil price for direction and whether the narrative can switch back to relative central bank policy moves.

NZD – kiwi somehow mounting a comeback against the Aussie – perhaps on the latest developments in China and sense that the Australian economy is more leveraged to China, and if 1.1000 is fully taken back in the AUDNZD pair, it could be curtains for the bulls.

SEK – SEK trying to claw back some gains after trading to the high of the range. Isn’t it unfair at some point to continue to see SEK lower if the EU existential risks worsen?

NOK – Norges bank incoming on Thursday. Given the global backdrop of the moment and falling Norges bank rate expectations, we’re not expecting any bombast in the new guidance.

Upcoming Economic Calendar Highlights (all times GMT)

   • 0800 – Poland Q2 GDP
   • 0830 – UK Jun. Avg Weekly Earnings
   • 0830 – UK Jun. Unemployment
   • 0830 – UK Jul. Jobless Claims Change
   • 0900 – Eurozone Jun. Industrial Production
   • 0900 – Eurozone Q2 GDP
   • 0900 – Germany Aug. ZEW Survey
   • 1230 – Canada Jul. Home Price Index


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 (
Full 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

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.