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The FX Trader: Is the USD no longer a safe haven?
John J. Hardy
Global Head of Macro Strategy
Résumé: JPY weakness continues to dominate the landscape, but it was worth noting that the US dollar entirely failed to serve as a safe haven as global equity markets tilted into risk-off mode yesterday, with US treasuries likewise failing to serve that safe haven role.
What to know: quick bullets
- The US dollar failed to serve as a safe haven during a brutal sell-off on Wall Street. Likewise, US treasuries also failed to serve their role as safe haven instruments as we seem once again in a brave new world in that regard. A weak 30-year T-bond auction may have been part of the story there. Are the USD and Treasury weakness down to unease that the Trump administration wants to focus on stimulus checks for lower income American families and the fiscal implications thereof? Or is it simply that the deflation of dominant US equity market and its massive megacaps means a deflation of the US dollar as well? And then there is Trump’s Epstein situation – one that I continue to think could mushroom out of control for him to an extent not currently appreciated.
- EURCHF – again, highlighting here that we are resting on the cycle lows, with the either/or of whether the SNB wants to put up a fight. And this without any angle on France and its fiscal outlook (Germany-France spread has tightened smartly of late – down to 73 basis points from the 85+ during the recent furor).
- UK: FT running a story that Chancellor Reeves and PM Starmer are set to ditch plans to increase income taxes to address the fiscal hole, pressuring sterling on the fiscal implications – new highs in EURGBP, record lows in GBPCHF, etc as Gilts gap lower on the open of trading in London.
Chart focus: EURUSD
EURUSD has reversed up through resistance in the 1.1600+ zone, an important technical development as it cements the reversal of the attempt through 1.1550 for now, aborting what I thought would prove a bigger correction to sub-1.1400 levels. So far we have only accomplished a neutralization of the sell-off. Still, the focus now reverts higher to the 1.1919 top eventually as long as higher support levels remain intact, starting ideally with 1.1600, with 1.1550 the last ditch ahead of the recent lows. If the lows are in here for now, this will have been a remarkably shallow consolidation in the bigger picture, suggesting more potential for any extension higher. But let’s take it one day at a time – volatility is still very low, though it is picking up and has likewise reversed out an extension to cycle lows. Next step would be a pull above 1.1670 resistance for the bulls.
Technical and other observations for key pairs.
- EURUSD – clearer signal now for bulls to get involved as outlined above.
- JPY pairs – the JPY does not like rising yields, with the 10-year JGB testing the recent post-2008 highs overnight as US treasuries failed to serve as a safe-haven as well. EURJPY has almost hit 180.00. When does the EU call out Japan and threaten action? EURJPY at 180 is economic warfare.
- GBPUSD and EURGBP – with both GBP and USD weak, the GBPUSD outlook is murky. In the meantime, perhaps worth pointing out that GBP managed to sit through the brutal US equity market selling without weakening – it was the income tax news (noted above) that moved sterling overnight. Has the market gotten too bearish of sterling? Very critical phase for the currency over the next two weeks into and after the November 26 budget. EURGBP needs to hold this rally today or it looks reversal-ish.
- AUDUSD and AUD – Both AUD and USD weak, but AUD was flying high on recent news flow and didn’t appreciate the risk off, so it “outweakened” the US dollar. A bearish shooting star candlestick yesterday, but one that is within the recent trading range that has persisted for months and months. Need to zoom out and wait for either 0.6450 break to downside or 0.6600 break to upside. AUDNZD now looks thoroughly capped after the huge shooting star reversal yesterday. 1.1400 needs to hold there to avoid an even bigger consolidation.
- USDCAD – 1.4000 has held after the attempt lower yesterday as CAD struggles under the weight of risk off and the crude oil selloff. Chart very pivotal here, another poke and close well below 1.4000 could setup waterfall declines, while any extension of ugly risk-off and move up through perhaps 1.4080 suggests another squeeze higher in choppy up-trend.
Next steps
We are in a fairly chunky risk-off event here – one that feels quite serious as the proximate cause seems to be “organic” rather than caused by any specific trigger like a Trump tariff tirade, etc. With global equity markets under massive pressure, the correlations thus far in this risk off event are almost entirely at odds with my 20-plus years of experience in the currency market – so it feels like we are in a foreign land – will have to rely more on technicals and narratives as they emerge.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
While the US dollar has weakened in recent days – other currencies are weaker, so the broader picture remains muddled there, while CHF as safe haven remains rock solid (though with the dominant EURCHF at critical levels) and JPY weakness dominates for now. SEK and NOK putting in impressive resilience here despite the risk off tone.
Table: NEW FX Board Trend Scoreboard for individual pairs. Our trend measure for EURUSD note yest flipping to positive, but will if EURUSD stays anywhere near 1.1600 in coming sessions, while USDCHF is set for a tardy flip to a negative trend after the recent sharp rally was a nasty head fake. Likewise, EURNOK trying to join EURSEK in starting a down-trend, but a bit tough to do when risk-off is the theme – and some important ranges to bust through in those pairs for a real trend to develop.
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The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..
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