Login Open account
Singapore
Latest CNY boost now the chief driver of USD weakness Latest CNY boost now the chief driver of USD weakness Latest CNY boost now the chief driver of USD weakness

Latest CNY boost now the chief driver of USD weakness

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The USD sell-off broadened to EURUSD in recent sessions, but CHF and JPY are suddenly weaker and the chief driver of the moment is not the recent Fed pivot but rather China’s boost to its currency as we continue to await news on a US-China trade deal.

Yesterday’s session at least partially eroded confidence that we are seeing the unfolding of a broadening rout for the US dollar, as EURUSD dipped back toward 1.1500 rather than following through higher,  and USDJPY found support, while USDCHF and EURCHF jumped higher. More on that below.

For now, it appears the chief new driver of USD weakness is China’s persistent move to strengthen its currency, perhaps an attempt to provide additional goodwill as we have yet to see an announcement on a purported trade deal. China’s top trade official is headed to Washington for further talks, offsetting some of the relief from recent conclusion of lower level trade talks.

Relying on China to drive a weak USD story is less appealing than the dovish Fed story (for now, the Fed has downshifted as far as it can, and the issue from here is the challenge of circular logic as further Fed dovishness requires signs of strain in financial stability measures, which then sees the Fed more cautious, which then eases financial conditions and allows the Fed to stay on track with QT, etc…).

We could be playing that game for some time while we await incoming data. As for the CNY, there are certainly grounds for fearing that CNY is being man-handled as a backdrop in the top-level US-China trade talks.

The Swiss franc move was sufficiently large to demand an explanation, one we’re not entirely sure we can provide, but perhaps the recent evolution of the Brexit situation is a key factor: the idea that no matter what, the UK political leadership will not pursue a no deal Brexit. There is increasing consensus that we are headed toward a significant delay to the Article 50 deadline, a delay that could add to sterling risks on negative implications for the UK economy.

Risks to the economy, however, on uncertainty over the terms of Brexit are not the kind of risks that would drive significant flows into a Swiss franc safe haven on the feared “cliff edge” scenario on risk of systemic financial system disruptions. An interesting opinion piece yesterday from Bloomberg aired the idea that May could appeal to a non-partisan spirit and get some of the Labour opposition into the process of defining the next step for the Brexit process, given the stark divide within the Tory party. Regardless, we are far from a Brexit solution but also far from a cliff edge Brexit of any stripe and CHF looks rich. GBP implied volatility is dropping quickly. 

Chart: EURCHF

A sharp move in EURCHF after a choppy poke at the key 1.1200 area. Trend-lines are threatened here and with no immediate EU existential risks on the docket, there could be room to run to the upside here into the next obviously pivotal area toward 1.1500.
Source: Saxo Bank
The G-10 rundown

USD – another aggressive extension higher in China’s currency versus the USD is the chief new driver here of USD weakness. Actually a bit underwhelmed by the market’s response to the size of the USDCNY rate move.

EUR – EURUSD still above 1.1500, though a bit disappointing that the move didn’t extend yesterday – is the move merely a squeeze on speculative shorts as resistance gives way on the recent Fed shift and China’s forceful (temporary?) CNY boost?. We would like to believe in the break higher , but need to see the outcome of trade negotiations and the market’s reaction.

JPY – the yen is sitting out the action, given reasonably stable risk appetite and more interest in bidding up currencies more leveraged to benefit from global growth if a US-China trade deal is concluded. Watching the recent highs in USDJPY and the 125.00+ area in EURJPY for a sense of relative strength.

GBP – sterling is still offered versus the EUR as we head toward a defeat of May’s deal next Tuesday and increasing consensus that we are headed towards a delay. Situation fluid after Tuesday and sterling prone to headline risks. An extension of uncertainty sterling-negative, but perhaps the risk of a shocks lower on cliff-edge no deal threats receding.

CHF – an interesting move yesterday, worth hanging one’s hat on as long as EURCHF remains clear of 1.1275-1.1300 zone – but can we build something beyond 1.1500? 

AUD – gathering clouds on the domestic credit crunch front and fears that Australia is headed for its first recession in a generation offsetting some of the boost from a sharply stronger CNY.

CAD – USDCAD is grinding lower and could yet challenge the 200-day moving average below 1.3100. If the chart begins to work through there and into 1.3000, we have to ponder whether a more profound reversal is afoot.

NZD – the kiwi is gunning higher versus the US dollar, following CNY’s lead as New Zealand avoiding Australia’s housing bubble focus. In that light – AUDNZD rally under threat if it transitions below 1.0550.

SEK – the backdrop about as supportive as possible for EURSEK to move lower, but market not biting. Key for next steps could be Monday’s Swedish December CPI print.

NOK – EURNOK pushing down through the bottom of the 9.75-9.80 pivot…not yet administering the knock-out blow.

Upcoming Economic Calendar Highlights (all times GMT)

0930 – UK Trade Balance (Nov)
0930 – UK Industrial Production (Nov)
1330 – US CPI (Dec)

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

Read article

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Read article

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Read article

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Read article

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Read article

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article

  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article

  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article

  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article

  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article

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
Products & pricing
Asset Management
Platforms
Accounts & service
General
Other
Legal

Losses can exceed deposits on margin products. Please ensure you understand the risks.

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.