FOREX

EUR and AUD weak on growth concerns

John Hardy

Head of FX Strategy

Summary:  The euro is stumbling ahead of the Q1 GDP print as weak lending data and fresh populist agitation from Italy weigh on the single currency. AUD is also weak ahead of pivotal jobs data that could seal the deal for a coming RBA rate cut.


Risk appetite has generally bounced back on hopes that US and China can avoid fresh escalation for now in their showdown over trade issues. Apparently, the market feels confident after a sideways day, that the USDCNY rate will remain capped as long as negotiations haven’t entirely collapsed.

A couple of interesting tidbits that don’t support the market’s rather complacent stance: first, a speech by Xi Jinping overnight criticized those (implicitly the US) who think they can reform other nations, and second, the story that Trump is considering a blanket ban on Huawei for telecoms in the US.

The big news in the Asian overnight was China’s Industrial Production and Retail Sales data missing expectations for the year-on-year figures by more than a percent. The latter, at +7.2% year-on-year, is the lowest rate since 1999 save for a one-off spike in 2003. Even that rate is hard to accept, given the large absolute drops in car sales over the last few months. Markets took this in stride…

The euro is a shade lower (the euro only moves in shades these days, it seems) after yesterday Italy’s Salvini said he would be happy to ignore EU budget rules until the Italian unemployment rate, currently 10.6%, falls to 5%. Italy’s BTP yields have steadily risen of late in a falling yield environment for safe haven sovereign bonds and the 2-year BTP, at 0.70%, is at its highest yield this year. This noise comes ahead of the EU parliamentary elections next week, where the strength of eurosceptic results could drive further existential concerns. It seems EURCHF has finally woken up to the issue.

Recent EU lending data points to a rising risk of a growth slowdown dead ahead. I tweeted out a chart from Commerzbank pointing to the accelerating of the already cratering rate of lending to non-financial corporations and the household lending rate is dipping into negative territory as well. If export orders don’t pick up, shield your eyes for the coming couple of quarters’ EU growth data.
Chart: AUDUSD

We’ll run with an AUD chart again as the stakes are high for all AUD crosses over tonights April jobs report, as the Reserve Bank of Australia has intensified the focus on employment data after the most recent policy meeting linking a rate cut decision to the state of the labour market. The market is still on the fence on whether the RBA cuts at the early June meeting,  but an ugly report could quickly increase conviction that the RBA caves.
Source: Saxo Bank
The G10 rundown

USD – the greenback near the top of the heap, but remains bogged down in a range in most pairs, likely held back by the USDCNY rate cap assumption.

EUR – mounting tactical risks for the euro, which may have a hard time piecing together any significant rally ahead of the EU parliamentary elections. GDP data up this morning.

JPY – maintaining a reasonable bid in the crosses even as risk appetite has improved a bit over the last couple of sessions. Strong safe haven bond markets likely to keep supported.

GBP – sterling suffering risk of a tactical breakdown to probe fresh supports as Brexit is going nowhere fast.

CHF – the now you don’t see it, no you do safe haven status of CHF suddenly in evidence and possibly linked to EU existential risks, EU peripheral spreads, Brexit, more than general risk off on the US-China trade tension theme. The latest EURCHF dip opens up for the range  to the  big 1.1200 support zone.

AUD – slow motion breakdown in AUD with the key test tonight over the latest April jobs report Down Under. How aggressively can a move extend, however, with the CNY floor in place?

CAD –  the latest Canada CPI up today – likely more sensitive to a downside miss as we await a pulse in USDCAD.

NZD – watching for AUDNZD support at some point to prove the point that the chart has structurally turned. AU yield drop will have a very difficult time outpacing NZ yields.

SEK – EURSEK consolidating after the brutal run higher, but the trend remains higher as long as we trade above 10.60-65 and EUR weakness due to weaker growth fears can feed an even weaker SEK.

NOK – NOKSEK is interesting around the 10.00 level as we discussed in a post yesterday

Upcoming Economic Calendar Highlights (all times GMT)

0900 – Eurozone Q1 GDP
0900 – Eurozone Employment
1230 – Canada Apr. CPI
1230 – US May Empire Manufacturing
1230 – US Apr. Retail Sales
1315 – US Apr. Industrial Production
1400 – US May NAHB Housing  Market Index
1415 – ECB’s Coeure to speak
1630 – ECB’s Praet to speak
0130 – Australia Apr. Employment Change / Unemployment Rate
 

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)