FX Daily 07:00 CET

26 September 2024

C https://research.ca-cib.com

Of policy mistakes and other

pressing matters
Asia overnight
Valentin Marinov
Global equity futures have flashed green overnight in the wake of the proposal of Head of G10 FX Strategy
a 21-day ceasefire across the Israel-Lebanon border, while it remains to be seen +44 20 7214 5289
how the initiative will be received by the two belligerents. The follow-through on valentin.marinov@ca-cib.com

G10 FX has been very muted at best, perhaps because rates and oil prices have
hardly shown any reaction either. The AUD is nonetheless marginally David Forrester
outperforming an otherwise very quiet G10 FX, with AUD/USD bouncing back Senior FX Strategist
towards 0.6850 as the RBA’s semi-annual financial stability still sees risks to +65 6439 9826
david.forrester@ca-cib.com
Australian households and firms as being contained.
alexandre.dolci@ca-cib.com Alexandre Dolci
FX Strategist
Of policy mistakes and other pressing matters +44 20 7214 5064
alexandre.dolci@ca-cib.com
Global risk assets continue to bask in the warm afterglow of last week’s aggressive
Fed cut. The latest monetary easing in China further adds to the sense of elation.
Latest publications
An important question remains, however, regarding whether the easing from the
Fed (and other central banks) would amount to doing too little too late. We believe 25 September – FX Risk Index: Fed does
that the FOMC easing could increase the chances of soft landing in the US and not alleviate investors’ fears
that this could give the USD a boost over time. What our clients could continue to 25 September – FX ME Rebalancing:
worry about, however, is the lack of ECB policy activism that could leave the Neutral month-end rebalancing and
Eurozone mired in stagflation and even flirting with recession. As a result, while the corporate EUR selling
EUR still benefits from the boost to its rate appeal coming from the ECB’s hesitancy 23 September – FX Positioning Update:
to cut, the single currency could ultimately suffer if the ECB is forced to play catch Longs in G4 FX trimmed
up and ease more aggressively in the coming months. 23 September – FAST FX model: Sell
Focus today would be on the latest jobless claims, the preliminary durable goods EUR/JPY
data for August and the third print of the Q2 GDP data out of the US as well as 20 September – FX Weekly: A hard or
speeches by the Fed’s Jerome Powell, Susan Collins, Michelle Bowman, John soft landing for the USD?
Williams, Lisa Cook, Neel Kashkari and Michael Barr. In addition, the latest M3 Overnight returns (%, vs USD)
data out of the Eurozone as well as speeches by the ECB’s Christine Lagarde, Luis
de Guindos and Isabel Schnabel would attract some attention. With many Fed- AUD
related negatives already in the price of the USD, it would take disappointing GBP
(labour) data as well as dovish surprises from the Fed to see the USD under
pressure. At the same time, evidence that the US economy is holding up well and/ NOK
or that the Fed remains less united on the near-term outlook for rates could help CAD
the USD consolidate. Elsewhere, the ECB speakers could stick to the view that EUR
additional easing is not imminent. That said, evidence that the Eurozone lending
SEK
channel remains stagnant could add to market concerns that the ECB is falling
behind the curve, in a blow to the EUR. CHF
NZD
valentin.marinov@ca-cib.com
JPY
CHF: going out with a bang?
-0.1 0 0.1 0.2 0.3 0.4
The CHF has whipsawed over the past week or so, in part following in the JPY’s Source: Bloomberg, Crédit Agricole CIB
footsteps, and possibly because of some “buy the rumour, sell the fact” going into 1M implied volatility daily change
today’s SNB meeting. Another rate cut is hardly in doubt today, with the question (net, vs USD)
mark being rather around the eventuality of a more forceful SNB. A 50bp cut would
not come as much of a shock after last week’s Fed decision, while other central SEK
banks have also considered such a move in their recent discussions. For AUD
Switzerland, it could make sense for two specific reasons: (1) Swiss inflation has GBP
proved softer than expected in recent months, cooling back towards 1% YoY
NOK
whereas the SNB looked for a pick-up towards 1.5%; and (2) the CHF has
massively and broadly appreciated since the June meeting, with its real effective EUR
valuations being close to its multi-year highs. On top of that, outgoing President NZD
Thomas Jordan may also want to leave with a sense of accomplishment, having CAD
never been shy of bold decisions such as the historic removal of the EUR/CHF CHF
floor nearly ten years ago. Nevertheless, the SNB could also use another leeway
JPY
-0.15 -0.1 -0.05 0 0.05
1 CIB
Source: Bloomberg, Crédit Agricole
FX Daily 26 September 2024 (07:00 CET)

than rates to especially assert its grip on the CHF, with the eventual return of the
reference to the CHF being “highly valued” and/or the explicit acknowledgement of
focusing interventions on FX purchases. All in all, it is hard to see how Jordan’s
farewell could bring heavy CHF bids back to the table unless global risk appetite
takes a turn for the worse, while just a 25bp cut on its own may risk a short paring
back of this month’s CHF losses. In any case, CHF shorts remain much more
compelling vs the USD than the EUR in our view at present, while riskier carry
trades may only make a more durable comeback next year.
alexandre.dolci@ca-cib.com
JPY: the other presidential election
Frustrated Japanese bulls will be eyeing the LDP presidential election on Friday to
replace outgoing President and PM Fumio Kishida. According to our Japan
economists, the competition will be between the “succession” and “pseudo-regime
change” forces. The event will be important for the JPY given the likely impact on
the future path of monetary policy as well as the shape of the JGB curve.
The “succession” force, which includes Minister of State for Economic Security
Sanae Takaichi who has a 25% chance of winning, according to our economist,
aims to solve social issues and establish economic security by cutting costs and
overcoming deflation through increased investment by the public and private
sectors in unison and to shift to a growth-oriented economy. This is the economic
policy direction of outgoing President and PM Fumio Kishida’s New Capitalism,
which includes aggressive fiscal policy and Abenomics. Our economists think if
Takaichi wins the election, becoming Japan’s first female PM, the JGB curve would
steepen given that she favours loose monetary policy and aggressive fiscal policy.
In our view, Takaichi’s success would be negative for the JPY as it would slow the
BoJ’s monetary policy normalisation and widen the US-Japan rate differential.
While a steeper JGB curve would be supportive of the JPY, our USD/JPY FAST
FX models show that the US-Japan box yield spread is a much smaller driver of
the exchange rate than the US-Japan short-term rates differential.
The main champion for the “pseudo-regime change” force is former Secretary-
General Shigeru Ishiba, who our economists give a 20% chance of winning. A
victorious Ishiba would pursue neoliberalism, prioritising fiscal soundness and anti-
Abenomics policies squeezing fiscal spending that prolongs the lives of zombie
companies and restructure industry around large corporations. There would also
be a faster pace of monetary policy normalisation under Ishiba as low rates are
viewed as also allowing zombie companies to survive. While the JGB curve would
flatten in the event of an Ishiba victory, the fall in the US-Japan short-term rates
spread would strengthen the JPY.
A potential conciliation candidate is Former Minister of Environment, Shinjiro
Koizumi, who our economists give a 20% chance of winning the presidential
election. Koizumi is seen as eclectic, promoting deregulation over government
investment in growth, while continuing New Capitalism, aggressive fiscal policy
and Abenomics. A Koizumi victory would not lead to as large a steepening the JGB
curve as a Takaichi victory, according to our economists, but would still reduce the
pace of monetary policy normalisation and so weigh on the JPY.
david.forrester@ca-cib.com

2
FX Daily 26 September 2024 (07:00 CET)

Open trade recommendations

Date Opening Time Direction Entry Target Stop Last/ Close P&L*
Short EUR/JPY (FAST FX Model) 27/02/2024 09:00 BST SELL 159.52 157.00 165.65 161.32 -0.59%
EUR/USD 19/08/2024 09:20 BST SELL 1.1051 1.0600 1.1280 1.1143 -0.65%

*Returns calculated as %VaR with 2% risk allocation per

trade

Key events
Country/ CA-CIB
GMT Indicator/Event For Cons. Prev. Comment
Zone f/c
07:00 JN Machine Tool Orders YoY Aug -3.50%
07:00 SW Trade Balance Aug 6.50 B
07:00 SW Lending Aug 0.70%
07:00 GE GfK Consumer Confidence Oct -22.00
08:00 SW NIER Eco Tendency Sep 94.70
08:30 SZ SNB Sep 0.75%
09:00 SZ SNB's Jordan Speaks After Rate Decision
09:00 EZ Money Supply Aug 2.30%
09:00 IT Consumer Confidence Sep 96.10
13:30 US Durable Goods Orders Aug -2.90% 9.80%
13:30 US Core PCE 2Q 2.80%
13:30 US Personal Consumption 2Q 2.90%
13:30 US GDP QoQ 2Q 2.90% 3.00%
14:10 US Fed’s Collins, Kugler Participate in Fireside Chat
Fed’s Bowman Speaks on Eco Outlook at Mid-Sized
14:15 US
Bank Coalition
14:20 US Fed's Powell Gives Pre-Recorded Opening Remarks
14:25 US Fed's Williams Gives Remarks at Conference
14:30 EZ ESRB's Lagarde Gives Welcome Address
15:00 US Pending Home Sales Aug -5.52%
15:15 EZ ECB’s Guindos Speaks
15:30 US Fed's Barr Gives Remarks at Conference
Fed Governor Cook Joins Roundtable on AI and
15:30 US
Workforce Develop
16:00 US Kansas City Fed Sep -3.00
17:00 EZ ECB’s Schnabel Speaks
18:00 US Fed's Kashkari Hosts Fireside Chat with Michael Barr
Fed Governor Cook Delivers Speech on AI and
23:00 US
Labor Force
00:30 JN Tokyo CPI YoY Sep 2.60%
06:00 JN Leading Index Jul 109.50

Source: Bloomberg, Crédit Agricole CIB

3
FX Daily 26 September 2024 (07:00 CET)

Global Markets Research contact details

v. 06/09/18 Jean-François Paren Head of Global Markets Research +33 1 41 89 33 95
Asia (Hong Kong, Singapore & Tokyo) Europe (London & Paris) Americas (New York)
Takuji Aida Ken Matsumoto Louis Harreau Valentin Giust Nicholas Van Ness **
Chief Economist Japan Macro Strategist Japan Head of Developed Markets Global Macro Strategist US Economist
Strategy

+81 3 4580 5360 +81 3 4580 5337 Macro & Strategy +33 1 41 89 30 01 +1 212 261 7601
Macro

+33 1 41 89 98 95

Bert Lourenco Jean-François Perrin Alex Li **

Head of Rates Research Senior Inflation Strategist Head of US Rates Strategy
+44 (0) 20 7214 6474 +33 1 41 89 73 49 +1 212 261 3950
Guillaume Martin Matthias Loise
Interest Rates

Interest Rates Strategist Inflation Strategist

+33 1 41 89 37 66 +33 1 41 89 20 06
Riccardo Lamia
Interest Rates Strategist
+33 1 41 89 63 83

Xiaojia Zhi Jeffrey Zhang Sébastien Barbé Olga Yangol **

Chief China Economist Emerging Market Strategist Head of Emerging Market Research & Strategy Head of Emerging Market
Emerging Markets

Head of Research, Asia +852 2826 5749 +33 1 41 89 15 97 Research & Strategy,
ex-Japan Americas
+852 2826 5725 +1 212 261 3953
Yeon Jin Kim
Eddie Cheung CFA Emerging Market Analyst
Senior Emerging Market +852 2826 5756
Strategist
+852 2826 1553
David Forrester Valentin Marinov Alexandre Dolci
Senior FX Strategist Head of G10 FX Research & FX Strategist
Exchange

+65 6439 9826 Strategy +44 20 7214 5064

Foreign

+44 20 7214 5289

Alexandre Borel
Research

Data Scientist
+33 1 57 87 34 27
Quant

** employee(s) of Crédit Agricole Securities (USA), Inc.

Certification
The views expressed in this report accurately reflect the personal views of the undersigned analyst(s). In addition, the undersigned analyst(s) has not and will not receive
any compensation for providing a specific recommendation or view in this report.

Valentin Marinov, David Forrester, Alexandre Dolci

Important: Please note that in the United States, this fixed income research report is considered to be fixed income commentary and not fixed income research.
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MiFID II contact details

Andrew Taylor Please send your questions on
MiFID II Research contact MiFID II to:
andrew.taylor@ca-cib.com research.mifid2@ca-cib.com

4
FX Daily 26 September 2024 (07:00 CET)

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