FOREX 4 minutes to read

Outside of JPY, FX largely hibernating

John Hardy

Head of FX Strategy

Summary:  The frantic gyrations in global equities have fed far less volatility in currencies than in previous cycles, partly due to conflicting themes for the US dollar. Only the yen has played a muted version of its former safe haven role over the last week of trading.


Currency traders are unsure what to make of the backdrop of what is so far shaping up as the worst December in modern market history. Most currencies have traded in relatively sideways fashion or only traded with a weak beta to the risk on/risk off gyrations of the last ten trading days, including yesterday’s emphatic bounce.

The two most volatile currencies in G10 have been the trusty yen, which has more consistently, if still in rather muted fashion, played its safe haven role more consistently over the last week, and the Norwegian krone, which has been left twisting in the wind by Norges Bank’s cessation of purchases and the crash in oil prices. Yesterday’s enormous rally in equity markets and oil finally brought relief to the beleaguered krone after it crosses above the pivotal 10.00 level and we may have seen the top for now if this rally in risk and energy marks at least a temporary low as Norges Bank purchases  will resume in January.

Market observers' attempts to gin up a narrative for what has unfolded this month are generally insufficient. The terrible month of December was likely not just about Trump’s chaotic administration and criticism of the Fed or the tight Fed itself or algos but more likely a combination of all of the above, in addition to the crash in oil prices and drying up of liquidity.

Likewise, yesterday’s steep rally in risk appetite was attributed in part to Trump’s reassurance that Mnuchin’s and Powell’s jobs are safe, when in fact the likely key driver was end-of-month and end-of-quarter portfolio rebalancing after an enormous drop. I am certainly not alone in being personally responsible for these types of flows with my pension allocations at fixed percentages in stocks and bonds. Alas, whether this bounce extends into the end of this week and the end of the year on Monday (suspect most serious flows will dry up ahead of the weekend), we won’t know the lay of the land until the New Year gets fully under way in the coming weeks and risk takers have fresh mandates to put their capital to work, whether with bullish or bearish designs. 

Disclaimer

The Saxo Bank 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. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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/legal/disclaimer/saxo-disclaimer)