Un seul compte Saxo suffit pour accéder à nos plateformes.
US dollar status pivotal as FX volatility remains sluggish
John J. Hardy
Global Head of Macro Strategy
Résumé: The US dollar rally has consolidated and now must either reverse or re-establish itself as FX volatility remains low despite volatility in risky assets. AUDNZD making fresh 12-year highs, while sterling firmed post-BoE.
FX volatility has yet to pick up on weak risk sentiment. USD status key here.
The US dollar rally consolidated over the last couple of sessions, with EURUSD bouncing from 1.1469 to as high as 1.1552 yesterday before the US dollar found support. That 1.1550-75 area in EURUSD is key resistance if this USD rally is to remain in place, together with the 153.00 support area in USDJPY after a new local low of 152.82 overnight was rejected and we trade closer to 153.50 as of this writing in early London hours.
So far the volatility in risky assets has yet to show enough teeth to trigger notable contagion into fixed income and FX, with USDJPY 1-month volatility pinned near 18-month lows. We’ll need volatility and contagion across asset classes to pick up significantly to find out whether the US dollar or the JPY performs best on risk aversion as a safe haven – I suspect the latter. In the meantime, despite yesterday’s reversing out of the surge in US treasury yields, JPY has a hard time sustaining a bid.
Amidst the paucity of US data, we got a very ugly Challenger Job Cuts figure of 153,000 for October, the worst number since March.
Bank of England sees modest GBP relief. The Bank of England meeting saw a narrow 5-4 majority in favor of not cutting the policy rate this time around, with clear guidance that the bank sees a softer labor market and rising confidence that inflation is falling. While the more dovish guidance this time did raise odds of a December cut (now over 70% probability), the overall rate trajectory hardly shifted as two-year UK rates fell back less than two basis points and are solidly mid-range of last several trading sessions. This saw some relief in GBP pairs – EURGBP backed off below 0.8800 (watch that important 0.8750/60 area if this is going to go into full reversal mode) and GBPUSD surged well above 1.3100 after that near test of 1.3000 earlier this week.
AUDNZD a nice rate divergence story – what a trender. While many corners of G10 FX are not terribly inspiring and choppy and rangebound, the outstanding trending story of the moment is the AUDNZD bull as the widening yield divergence at the front end of the Australian and New Zealand yield curves continues to drive this one higher. Today we are seeing levels above 1.1550, levels not seen since late 2013. The 2-year yield spread has reached almost 100 basis points, a level only seen in the last 25 years during a brief episode in the 2010-2011 period, when AUDNZD traded in the 1.25-1.35 area, so there could be room for this rally to extend to 1.2000+.
Chart: EURUSD
EURUSD has bounced here after taking out the 1.1542 range lows recently and only managed to push to a 1.1469 low in low-volatility fashion before bouncing back to test the now key 1.1550-1.1575 resistance. If the pair works back above there and above 1.1600, the near-term bearish case looks lost, while a push and close back below 1.1500 here into the end of the week would support the trending case. It’s all very low volatility stuff as FX has yet to see vols pick up meaningfully despite the spike in volatility in risky assets. Bond market volatility has picked up slightly, but only after punching to new multi-year lows recently since late 2021.
Looking ahead
End to US government shutdown and US data please? The US government shutdown is becoming increasingly impactful, now causing significant travel disruptions at airports as capacity is reduced. Meanwhile, a US -district judge ruled that the US department of agriculture must fully fund SNAP food payments to the 42 million Americans that will not receive their food aid this month if the shutdown drags on. At issue is the US Senate Democrats refusing to sign a budget that doesn’t contain more healthcare subsidies. No employment report today in all likelihood, with only a preliminary University of Michigan sentiment number from November to entertain us today.
More than economic data next week, FX traders may need to watch risky assets for whether contagion spreads across into other asset classes as we reach key levels in the US VIX volatility index (20-ish), with much of the unease driven by concerns that AI stocks have been inflated to excessively bubbly valuations.
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.
The US dollar has the strongest trend reading after the CNH, which has mostly simply tracked the US dollar directionally. Elsewhere, he NZD is the outlier on the weak side in rather quiet market.
Table: NEW FX Board Trend Scoreboard for individual pairs. AUDNZD bull trend getting into rarefied air with a rare strength reading of 10. EURCHF is flipping to a positive trend if near current levels today as the recent Swiss CPI report has the market pricing negative policy rates from the SNB. Elsewhere, GBPJPY is the pioneering JPY cross slipping into a negative trend – more driven by GBP weakness than any broader JPY strength for sure so far. And EURSEK is squeezing above resistance a 11.00 and indicating an end to the attempt to re-establish the bear trend. Big overhead resistance at 11.09 there.
This content is marketing material and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.
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..
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..