Fed fails to fuel dollar rally Fed fails to fuel dollar rally Fed fails to fuel dollar rally

Fed fails to fuel dollar rally

Forex
John Hardy

Head of FX Strategy

The Federal Open Market Committee statement has been picked over for significant hints, and the most significant of these was the insertion of the word “symmetric” to describe the Fed’s inflation target. The interpretation here is slightly dovish – it's basically an indication that the Fed isn’t about to lose its cool if inflation rises further in coming months now that the 2% target has effectively been reached.

Many leading indicators and basing effects suggest inflation could rise further over the summer. 

Otherwise, there wasn’t much else in the statement in the form of takeaways, and the USD settled largely “unchanged” after rallying to new highs ahead of the statement and then weakening sharply – about 60-70 pips in EURUSD terms – before giving up much of the reaction. US yields pulled back slightly, with the 10-year benchmark off the day’s highs but remaining within the trading range of the last few sessions.  

In short, the USD rally appears very much intact and ready to have a look at the next round of incoming data, including today’s April ISM non-manufacturing survey and the April jobs and, more importantly, earnings data on Friday. The useless (as an NFP change predictor) ADP payrolls data showed jobs growth in April of +204k , about par for the course. It’s hard to believe the ISM non-manufacturing can sustain the high 50s for much longer, but expectations are running to 58.0 for today’s number.

Today sees the latest Norges Bank announcement. The market is caught in a nervous area technically around the 9.70+ level in EURNOK and with a number of conflicting developments. The government cut the central bank’s inflation target to 2.0% from 2.5% to align Norway with other countries – a hawkish development if inflation nears the 2.0% level again, but that decision has recently come under fire politically.

As well, the most recent inflation report was a distinct disappointment and oil prices have suffered a couple of weak sessions. Given the technically pivotal levels, we could see considerable volatility on the back of the decision today if the Norges Bank wants to make a point.

Chart: EURJPY

Taking our eyes off the USD a bit, we note some interesting developments in EURJPY, which has posted a smart reversal around the 200-day moving average and the top of the Ichimoku daily cloud. There could be considerable room to run to the downside here, given the relative economic developments in the Eurozone in recent months relative to Japan and given the lack of a revaluation in the pair after the Bank of Japan long ago launched an undeclared, de facto taper. The cycle lows below 128.00 look pivotal for whether something quite large scale to the downside could develop.

The G-10 rundown

USD – the greenback rally is in fine form and looking for more until proven otherwise but we’ll soon need to see some separation from key pivot levels in major USD pairs like EURUSD at 1.2000, GBPUSD around 1.3600, USDJPY at 110.00, and AUDUSD at 0.7500.

EUR – the euro is awaiting proof that the economy won’t continue to weaken badly, a development that would take time; a weaker currency would help. The key for now is whether EURUSD is a buy here or if the USD rally is going to require patience and a second look in the 1.1500-1.1600 area.

JPY – the 110.00 level in USDJPY is a major milestone and could prove a tough nut to crack if exporter hedging arrives in force around here. Risk appetite and yield direction are additional considerations, as all of the above look pivotal (200-day moving average in the S&P 500 for former and the 3.00% level in the US 10-year benchmark for the latter.

GBP – sterling is struggling for oxygen ahead of next week’s Super Thursday Bank of England meeting/inflation report. Rate hike expectations have declined steeply from virtual certainty of a hike as recently as a couple of weeks ago to only 20% odds of a hike priced now. Sterling to find a local low around the meeting even if dovish as expected?

CHF – the franc is cutting no profile at the moment and in a holding pattern as long as it stays above 1.1900 and below 1.2000. Swiss National Bank governor Jordan is out speaking today.

AUD – the Aussie is refusing to slip the big 0.7500 level in AUDUSD just yet. and the pair is a reasonable proxy for the status of the USD rally.

CAD – USDCAD is steady in the 1.2800-1.2900 range and needing a boost soon to keep the rally going, though we prefer the USD against most other pairs even if the rally extends.

NZD – the 0.7000 level in NZDUSD is the local equivalent of 0.7500 in AUDUSD and AUDNZD has gone determinedly sideways and needs a rally through 1.0800-50 to get more structurally interesting for a rally extension.

SEK – the hapless krona is struggling to find a floor but getting to levels where the floor could be made of high-bounce rubber once it is found when the least ray of light is shone on the currency from a data or central bank angle.

NOK – Norges Bank today as EURNOK is banging on local range resistance – anything dovish could knock the currency sharply lower as it has been made more vulnerable by the recent weak inflation print.

Upcoming Economic Calendar Highlights (all times GMT)

   • 0800 – Norway Deposit Rate 
   • 0830 – UK Apr. Services PMI 
   • 0900 – Eurozone Apr. Flash CPI Estimate 
   • 1100 – ECB’s Praet to speak 
   • 1200 – ECB’s Constancio to speak 
   • 1230 – Canada Mar. International Merchandise Trade 
   • 1230 – US Mar. Trade Balance 
   • 1230 – US Q1 Nonfarm Productivity / Unit Labor Costs 
   • 1230 – US Weekly Initial Jobless Claims 
   • 1400 – US Apr. ISM Non-manufacturing Survey 
   • 1400 – US Mar. Facory Orders 
   • 1600 – Switzerland SNB’s Jordan to speak 

Disclaimer

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 (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

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.

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.