FxWirePro: Snapshot on cheaper and expensive crosses among G10 FX bloc

The market tone is constructive as we head into Tuesday’s NA session with notable strength in growth-sensitive commodity currencies NOK, AUD, and CAD. Havens CHF and JPY are weak. Media reports of a possible agreement to avoid another U.S. government shutdown are lifting sentiment as market participants await Fed Chairman Powell’s speech scheduled for 12:45 pm ET.

While the risk appetite lifted by fading shutdown concerns, USD is trading mixed against G10 with distribution revealing signs of risk appetite.

There has been substantial FX market moves over the past month and this has led to some changes in the ranking of currencies on this framework. 

On the cheaper end of the spectrum, following SEK’s notable underperformance over this period, SEK now screens as the cheapest currency on this framework. Meanwhile, GBP outperformance over the same period has nudged the currency closer to fair value (refer 1st chart). While GBP valuations are not at an extreme yet, SEK’s undershooting is now approaching decade-lows and may indicate some limits to how much recent underperformance can extend (refer 2nd chart).

The ranking is relatively unchanged on the rich end of the spectrum, with USD, EUR and the Antipodean FX still featuring on that list. Among the funding currencies, CHF is the only one near fair value, with USD the richest, followed by EUR and JPY. 

Yet, None of these valuations are at an extreme indicating that movement in either direction is possible.

While the richness of the Antipodean FX has come off the peak, both AUD and NZD continue to look overvalued relative to the G10 petro-FX. Both NOK and CAD continue to be near fair value on this framework (refer 3rd chart).

Despite the recent weakening, USD continues to screen 19% rich on the framework, keeping it the richest G10 currency on a cross-sectional basis. Current mispricing indicates two-way risks to the currency. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards 26 levels (which is mildly bullish), USD at 43 (mildly bullish), while articulating (at 14:50 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex