EUR_3_M

Yen bulls trampled. Trump-Putin talk on Ukraine buffets Euro.

Forex 6 minutes to read

Summary:  Yen bulls were run over by a spike on US yields after hot January inflation data. Euro choppy as Trump touts Ukraine discussions with Putin.


US inflation and prospect of Trump-Putin talk on Ukraine shaking the market.
A head-spinning day for FX traders yesterday, as the JPY cross rally turned downright face-ripping on hotter than expected US core inflation data and then later on US President Trump announcing that he had spoken to Russia’s Putin on moving to end the war in Ukraine. The latter also boosted the euro more than most other currencies as I discuss below.

The US inflation data sent US long yields sharply higher – the US 10-year benchmark traded up about 10 basis points and as high as 4.65% yesterday as the ex Food and Energy number surprised by 0.1% (actually only 0.054% unrounded) and by 0.2% for year-on-year (actually by 0.152% unrounded). USDJPY backed up in sympathy with the move in US yields and erased the entirety of the recent downside break. It’s clear that the JPY remains slave to US yields, so we have to understand where yields are headed to know what USDJPY will do next. For that we need more time.

In short: we need several more months of data to understand where US inflation is heading – this latest data point was likely partially misleading due to seasonal and idiosyncratic factors, but the market was very poorly positioned for it, hence the exaggerated reaction. I’m not convinced that we see further follow-through on US yields here, but if we do, this will quickly dominate the market focus, likely sending the USD higher and delaying the prospects for any USD bear case, especially in USDJPY. 4.70-4.75% is critical for the technical outlook for US yield and any threat back toward 5.00% would likely crater risk appetite across all asset classes. For USDJPY, the bears are disheartened for the moment, but structurally, the USDJPY bear case remains intact if retracements can remain below 156.00. In the JPY crosses, the reversal looks overdone relative to the moves in global yields – a blowout of recent short positions, in all likelihood. Let’s see whether the move sticks.

By the way: John Authers points out in his column today that US inflation breakevens have come totally unmoored for the 2-year horizon on the fear of a jump in the CPI due to tariffs, while the 10-year remains mostly anchored even if edging to new highs, while the 5-year remains somewhat stolidly anchored. He also points out that other key measures of core inflation continue to drop, even if they remain at too-high levels for the Fed to ease.

And remember: the attention will quickly be elsewhere – especially on Trump’s retaliatory or “reciprocal" tariffs that he threatened just hours ago to announce as soon as today.

Roller coaster for the euro on prospects for peace in Ukraine.
The euro is clearly trying to absorb the implications of the US position on a post-Ukraine war environment if it gets its way as it rallied sharply on the news yesterday. There are a couple of angles on this that are euro-positive. The first is the vague general lift in Europe as an end to the war removes uncertainty, but also possible more profound relief from lower energy prices, if Russian energy is seen flowing more freely westward down the road. The other angle is fiscal and more durable. Trump has made it clear that he would like to see Europe largely fending for itself with a rebuilt military to protect its own borders and backing up Ukraine’s military credibility. Paying for the rebuilding of Ukraine’s economy would also largely fall to the Eurozone. Bloomberg’s The Big Take today puts the price tag of the defense implications along of building a credible EU defense deterrent and protecting Ukraine in the neighborhood of USD 3 trillion. Anything in that direction means plenty of fiscal issuance and a much hotter EU economy, with the possibility of large-scale Eurozone-issued sovereign debt to pay for it – all euro-positive. Far too early to tell whether or how quickly we move in this direction.

The first step is getting to the other side of the German election to see if the CDU’s Merz, the inevitable next Chancellor, can build a coalition of the willing to push debt-brake concerns aside in move toward more easy fiscal stance (highest odds are on yet another “grand coalition” with the SPD, but my German colleague prefers the slightly less likely coalition with the Greens, but both are relatively euro positive if the coalition is strong enough to avoid blocking from the other parties.) As well – what role can the EU play in shaping the terms of the deal and its aftermath?

Watching EURCHF and EURSEK as isolated measures of how the market reads the odds of a large EU fiscal expansion. EURCHF pumped to the key  0.9500+ resistance on the news but has retreated sharply today – that is the very well defined trigger area there.

Chart: AUDUSD
The RBA meets next Tuesday and the market is pricing strong odds for a rate cut on a recent faster than expected drop of inflation, but other economic data, especially the tight labor market, weigh against the RBA moving here. Meanwhile, we have the entire US-China trade relationship concerns weighing on Aussie. It’s a tough call, but the chart lines are clear: a solid zone of resistance between 0.6300 and 0.6330 that would likely be tested on an RBA pass on cutting on Tuesday, while an RBA cut and trade/tariff concerns reviving next week and/or a further run higher in US yields could see a test below 0.6200. I suspect the RBA cuts as is almost fully priced.

13_02_2025_AUDUSD
Source: Saxo

Odds and ends

  • EURNOK has gone almost vertical after attempting a downside breakout. Supposedly some of the weakness was on a weak Q4 GDP estimate on Tuesday, but Norwegian rates hardly noticed, having risen the prior day on hot January CPI data. Rather, it appears that NOK is following the price of oil and natural gas lower, as the prospect for lower energy prices if a peace deal is reached longer term in Ukraine. There is room for further softness in NOK on this theme, but a stronger European fiscal outlook means a stronger European economy and may offset at some point.
  • The breakdown in NOKSEK is reaching interesting levels here. The SEK outlook is unambiguously positive on any strong European fiscal expansion – with EURSEK downside one way to express that view.
  • USDCAD failed to punch to new lows on two attempts at the 1.4250 area. This after the huge climax reversal on Trump’s tariff threats that were punted a month forward. On Monday we will be two weeks into that month – will Canada’s response prove strong enough to satisfy Trump?

Table: FX Board of G10 and CNH trend evolution and strength.
Note: the FX Board trend indicators are only on a relative scale and are volatility adjusted. Readings below an absolute value of 2 are indicative of relatively weak trend status, while a reading above 3 is quite strong and above 6 very strong.

The volatility of the last couple of days has scrambled the market, particularly the JPY, which the violent momentum shift over the last two and five days shows. Note the big positive momentum shift in the euro as well.

13_02_2025_FXBoard_Main
Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
JPY cross trends are still negative, but soon threatened if the JPY stays weak. Some key USD pairs like EURUSD and GBPUSD shifting USD negative here, but so much headline risk on trade in coming days and the technical breakouts aren’t there yet.

13_02_2025_FXBoard_Individuals
Source: Bloomberg and Saxo Group

Disclaimer

Confidentiality and Usage:
You may not reproduce, distribute, or transmit this material or any portion thereof without prior written permission from Saxo.

Nature of Information:
The information provided herein is based on current market conditions and analysts' opinions, which may reflect personal views of the author, and are subject to change without notice. This material does not include a record of any trading prices, or an offer of, or solicitation for, or endorsement to enter into any transaction in any investment product. Any forecast on the economy, markets and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the investment product subject of this material.

Responsibility and Liability:
Saxo accepts no liability for any use that may be made of these comments or for any consequences that arise from such use. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

The information provided in this material is solely for information only. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Accordingly, it should not be relied on or treated as a substitute for specific advice concerning specific situations of any person. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase an investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether any investment product mentioned in this publication is suitable for you.

Notwithstanding the above, insofar as any information provided herein contains research analyses or reports concerning any investment product authored by any foreign research house and is issued or promulgated to a person in Singapore who is not an accredited investor, expert investor, and/or institutional investor, Saxo Capital Market Pte. Ltd. accepts legal responsibility for the contents of this material to the extent required by law. Recipients of such material are to contact Saxo Capital Markets Pte. Ltd. in respect of any matters arising from, or in connection with, this material.

Risk Disclosure:
Trading in investment products involve significant risk, including the risk of losing your entire investment. Historical returns are not a guarantee of future returns. Prices can both rise and fall, and there is a risk that you will not get back the money you invested.

Conflicts of interest:
The author may hold positions in the investment products mentioned. The author does not own positions in the underlying investment product exceeding 0.5% of its market capitalisation, save as otherwise declared. The author is not permitted to trade the mentioned investment products within the first 24 hours after the publication of this article.

Saxo maintains partnerships with companies that compensate Saxo for promotional activities conducted on its platform. Additionally, Saxo has agreements with certain partners who provide retrocession contingent upon clients purchasing specific investment products offered by these partners. While Saxo receives compensation from these partnerships, all content is conducted with the intention of providing clients with valuable options and information.

Publication details:
If any listed companies are the subject of the material, the content has not been submitted to the companies in question prior to publication.

Please refer to our full disclaimer and notification on non-independent investment research for more details.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Singapore
Singapore

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.

Saxo is part of the J. Safra Sarasin Group.

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.