FX Update: Commodity currencies play catch-up
Summary: The EURUSD has retraced nearly all the way back to 1.2000 and neutralized the downside risk and more powerful momentum has now arrived in commodity-linked FX since yesterday against the big dollar, whether in G10 or in EM, the Russian ruble loudly excepted on new US sanctions incoming. More strong US data expected today, but the reaction to the CPI data earlier this week suggests that the market has already priced strong near-term numbers.
FX Trading focus: Commodity FX plays catchup, rising European yields, US data
The USD is lower again after yesterday’s action, though the action is switching to the more traditionally pro-cyclical currencies, as the G10 smalls and most EM currencies are playing some catchup in rallying against the big dollar. A huge jump in crude oil prices yesterday on a large US supplies draw has helped the commodity space and strong iron ore prices provided some offsetting support overnight for the AUD, which otherwise dipped at one point on a weak March jobs report showing that more than 100% of the net job growth on the month was in part-time positions.
As we noted on this morning’s Saxo Market Call podcast, the global Covid picture is still a concern and the global daily case count is actually not that far below its highest ever as a new wave is exploding in many populous EM’s including India, Turkey and the Philippines. But in Europe, markets seem to be looking beyond the vaccine stumbles as production and availability of the Pfizer-BioNTech vaccine looks set to expand dramatically from here. Certainly, SEK is enjoying a strong run recently on the euro’s recovery, as is its wont. EU yields are picking up as well, with the German 10-year Bund yield pulling back toward the key -25 bps yield in recent sessions. Looking at an article discussing the German Green party’s draft platform (warning: get your Google translate ready if you don’t read German) for the late September election, it is tough to over-emphasize how dramatic a development for the EU it would be to see this party in a ruling coalition, particularly if it has the Chancellorship. On everything from a more pro-EU stance and its opposition to the traditional German principle of fiscal “debt brake” austerity to the geopolitical implications for Russia (anti-NordStream2) and China (human rights concerns). The German polls are certainly on the move.
The core March US Retail Sales number today is expected to show an absurd month-on-month reading of 6%+ as the latest and largest of the US stimulus checks hit in the latter part of March. The recent past has shown how quickly the stimulus effect fades, so the market may look through this data, unless the jump is particularly high and suggests that some of the pent-up savings from the generous stimulus of 2020 and this year are being unleashed. Probably too early for that or for the market to jump to conclusions and the reaction to the hot CPI number earlier this week suggests that the bar is high for reacting to positive US data.
Chart: AUDUSD
The AUDUSD chart and many other USD charts have shown a fairly decisive leg of USD weakness, with commodity FX playing a good deal of catchup with other currencies over the last two sessions. The pair need now merely hold the 0.7650-75 area taken out on the way up to keep the sights on the 0.8000+ top and more. One development that might spoil the party for fresh bullish positions would be a renewed rise in US treasury yields. Iron ore futures in China were AUD-supportive overnight with a fresh surge, and tonight we have Chinese GDP and other data out.
Odds and ends
US to announce new sanctions against Russia. Anticipation of new sanctions against Russian individuals and entities and against US based investment in Russian sovereign-linked assets saw the ruble sharply weaker this morning. The Biden administration is assessing the sanctions on accusations of interference in the US elections and hacking of US company SolarWinds. The move arrives after earlier this week, the Biden administration seemed to be making friendly overtures on the prospects of a summit with Russian president Putin. Effectively, the whiplash has the net result that we are trading about unchanged from a week ago.
Turkey keeps rate unchanged at 19% as expected and the lira weakened slightly after a modest run of strength into today’s meeting. Not a surprise to see the reference to further rate-tightening removed from the prior statement, but also interesting to see the new statement indicating that the rate will be kept above the inflation rate, nominally TRY supportive in theory, but we have had a run of stabilization into this meeting, we know that the net reserve situation in Turkey is in bad shape, that the central bank will cut as soon as it thinks it sees daylight to do so, and Turkey is suffering an ugly new wave of Covid. I lean for USDTRY testing toward the highs of the cycle near 8.50.
John Hardy
Head of FX Strategy
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.
FX Trading focus: Commodity FX plays catchup, rising European yields, US data
The USD is lower again after yesterday’s action, though the action is switching to the more traditionally pro-cyclical currencies, as the G10 smalls and most EM currencies are playing some catchup in rallying against the big dollar. A huge jump in crude oil prices yesterday on a large US supplies draw has helped the commodity space and strong iron ore prices provided some offsetting support overnight for the AUD, which otherwise dipped at one point on a weak March jobs report showing that more than 100% of the net job growth on the month was in part-time positions.
As we noted on this morning’s Saxo Market Call podcast, the global Covid picture is still a concern and the global daily case count is actually not that far below its highest ever as a new wave is exploding in many populous EM’s including India, Turkey and the Philippines. But in Europe, markets seem to be looking beyond the vaccine stumbles as production and availability of the Pfizer-BioNTech vaccine looks set to expand dramatically from here. Certainly, SEK is enjoying a strong run recently on the euro’s recovery, as is its wont. EU yields are picking up as well, with the German 10-year Bund yield pulling back toward the key -25 bps yield in recent sessions. Looking at an article discussing the German Green party’s draft platform (warning: get your Google translate ready if you don’t read German) for the late September election, it is tough to over-emphasize how dramatic a development for the EU it would be to see this party in a ruling coalition, particularly if it has the Chancellorship. On everything from a more pro-EU stance and its opposition to the traditional German principle of fiscal “debt brake” austerity to the geopolitical implications for Russia (anti-NordStream2) and China (human rights concerns). The German polls are certainly on the move.
The core March US Retail Sales number today is expected to show an absurd month-on-month reading of 6%+ as the latest and largest of the US stimulus checks hit in the latter part of March. The recent past has shown how quickly the stimulus effect fades, so the market may look through this data, unless the jump is particularly high and suggests that some of the pent-up savings from the generous stimulus of 2020 and this year are being unleashed. Probably too early for that or for the market to jump to conclusions and the reaction to the hot CPI number earlier this week suggests that the bar is high for reacting to positive US data.
Chart: AUDUSD
The AUDUSD chart and many other USD charts have shown a fairly decisive leg of USD weakness, with commodity FX playing a good deal of catchup with other currencies over the last two sessions. The pair need now merely hold the 0.7650-75 area taken out on the way up to keep the sights on the 0.8000+ top and more. One development that might spoil the party for fresh bullish positions would be a renewed rise in US treasury yields. Iron ore futures in China were AUD-supportive overnight with a fresh surge, and tonight we have Chinese GDP and other data out.
Odds and ends
US to announce new sanctions against Russia. Anticipation of new sanctions against Russian individuals and entities and against US based investment in Russian sovereign-linked assets saw the ruble sharply weaker this morning. The Biden administration is assessing the sanctions on accusations of interference in the US elections and hacking of US company SolarWinds. The move arrives after earlier this week, the Biden administration seemed to be making friendly overtures on the prospects of a summit with Russian president Putin. Effectively, the whiplash has the net result that we are trading about unchanged from a week ago.
Turkey keeps rate unchanged at 19% as expected and the lira weakened slightly after a modest run of strength into today’s meeting. Not a surprise to see the reference to further rate-tightening removed from the prior statement, but also interesting to see the new statement indicating that the rate will be kept above the inflation rate, nominally TRY supportive in theory, but we have had a run of stabilization into this meeting, we know that the net reserve situation in Turkey is in bad shape, that the central bank will cut as soon as it thinks it sees daylight to do so, and Turkey is suffering an ugly new wave of Covid. I lean for USDTRY testing toward the highs of the cycle near 8.50.
John Hardy
Head of FX Strategy
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.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.