Summary: Trump comments turbocharged a weakening USD trend late Tuesday, although subsequent price action was choppy as these were likely casual remarks. This high momentum breakout has stolen focus from the JPY for the moment as the key USD pair on the move, and we face a nervous wait for the Japanese election on February 8.

What to know

Small update today as sources cited by all major media in Asian Friday suggest that Trump is set to nominate former Fed Governor Kevin Warsh as the next Fed Chair in Washington today to replace Chair Powell when his term ends in May. It's an interesting choice, given Warsh, who has been a top three candidate since the beginning of Trump's second administration, is not seen as particularly dovish or crying for large rate cuts, seemingly the only qualification for the job in Trump's eyes. After Wednesday's FOMC, for example, Trump took to social media to complaining about the need for a much lower rate and calling Powell a "moron".

The choice may reflect Treasury Secretary Bessent's council to choose someone with a steady hand and a thorough knowledge of the institution, suggesting to Trump that more Fed rate cuts could trigger a disorderly slide in the US dollar, with the advice weighing more heavily after the rough USD slide this week after Trump's own comments that shrugged off the recent USD weakness. Bessent may have also pointed out to Trump that the wild ramp in metals prices has a lot to do with the fear that his administration will manage its currency and fiscal situation poorly, a distinct inflation risk.

Warsh was a Fed governor from 2006 to 2011 and quit in protest over later rounds of deepening commitment to unconventional policy like quantitative easing. It will be very interesting to see how Trump spins this nomination. Let's remember, only Trump hatchet-man Stephen Miran and the dovish Christopher Waller (seen at one point as a front runner to replace Powell) argued for a rate cut at the FOMC meeting – it's a committee decision.

Market reaction: The reaction thus far has been quite modest, which should give the USD bears some comfort. EURUSD tested and held the first key 1.1900 area (arguably, 1.1800 is permissible without a full bull trend reversal), and USDJPY tested above 154.00 which likewise held as resistance (we still need to wait for the price action after the February 8 Japanese election for a strong read on the status of the yen). Elsewhere, the reaction was far stronger, with choppy risk sentiment crumbling again after the announcement, sending US equity market futures sharply lower. Likewise, precious metals are selling off once again and the Aussie, which had enjoyed the backdrop, was one of the weaker currencies overnight (more below).

Chart focus: AUDUSD

AUDUSD has retrenched to the psychologically significant 0.7000 area after a fairly brutal run higher across many of the rest of the G10 currencies over the last two weeks. The apparent Trump choice of Warsh is weighing on USD bearish conviction as it appears a rather more responsible pick, given that Warsh is considered an inflation hawk and the most hawkish of the potential Trump picks to replace Powell. The next test for the Aussie is next Tuesday's RBA meeting – could the huge repricing of the currency weigh in the RBA's decision on Tuesday? The market is leaning for a hike, which is about two-thirds priced in. A no-go on a rate move could see a further consolidation in AUD pairs, seeing AUDUSD testing perhaps 0.6900 or lower, but a "hawkish hold" that firmly sets up an anticipated hike at the following RBA meeting could soften the damage for AUD pairs. Of course, the RBA could just steam ahead with a rate hike and AUD could find support at higher levels if commodities prices likewise find a low and the USD remains broadly weak. No anticipation of a major reversal and AUD unless we see a collapse in metals prices, an ugly risk sentiment in equity markets and a rally in global bonds.

Source: Saxo

FX Board of G10 and CNH trend evolution and strength.Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.

US dollar weakness dominates – again, the reading is exaggerated because we have seen volatility expansion with this breakout, and our trend readings are volatility adjusted on a longer term time frame – so the reading does a good job of indicating how significant the move is relative to the prior quiet. Elsewhere, the AUD still a top performer, but note the loss of momentum over the last two sessions – next week is key for the currency.

Table: NEW FX Board Trend Scoreboard for individual pairs.No brand new trends for the major individual pairs at the top of the table, although we will watch the JPY crosses closely in the coming week and beyond in anticipation of the Japanese election on February 8. Further down the table, note the NOKSEK attempt to establish a new uptrend after yesterday's close.

Source: SAXO