EUROPEAN FX UPDATE: clear divides along risk-on/off lines

Analysis details (10:11)

DXY

Western allies, and NATO in particular remain very wary about the extent of Russian concessions beyond recent less inflammatory commentary and placatory platitudes, but the mood in financial markets continues to improve on the basis that days are passing by with no further escalation, if nothing else. Hence, more unwinding of safe haven premium and positioning before attention switches back to macro impulses from headline-watching, for a while at least, and a busy Wednesday agenda including heavy supply, several top tier US data releases and minutes from the January FOMC policy meeting. For the Dollar and index, the latter could be key again after the prior set of accounts added a more hawkish skew to the official guidance delivered in advance, especially as the Buck is weaker almost across the board and DXY has slipped further below 96.000 into a lower 96.064-95.764 range.

AUD/CAD/NZD/EUR/GBP

The Aussie is outperforming and probing trendline resistance against the Greenback around 0.7181 having breached the 50 DMA circa 0.7170 along the way, and overcoming another slide in iron ore prices overnight as risk appetite picks up again. Aud/Usd is also moving inversely with Usd/Cny-Cnh in wake of soft Chinese inflation metrics that offers the PBoC additional scope to ease in support of the economy, while Aud/Nzd inches closer to 1.0800 in the run up to jobs data tomorrow and Nzd/Usd treads more cautiously above 0.6650. For the record, RBA’s Debelle reiterated that rates will respond to unfolding economic developments, but his remarks hardly impacted. Elsewhere, the Loonie has reclaimed 1.2700+ status pre-Canadian CPI with assistance from a rebound in WTI and the Pound is back over 1.3550 as well as the pivotal 50% y-t-d Fib retracement point at 1.3554 post-stronger than expected UK inflation prints. However, the Eur/Gbp cross is still elevated in the high 0.8300 zone as the Euro clears a cluster of virtually aligning peaks to expose 1.1400 and hefty option expiry interest spanning the round number (1.046 bn between 1.1395-1.1405 to be precise). 

CHF/JPY/NOK

Risk and rate/yield dynamics are weighing on the Franc and Yen, as Usd/Chf straddles its familiar 0.9250 axis and Usd/Jpy meanders either side of a Fib at 115.67 that is becoming as well known, but keeping the headline pair capped after successive closes below. Conversely, the Norwegian Crown is losing technical momentum regardless of a bounce in Brent or somewhat mixed GDP outturns as Eur/Nok tests the 200 DMA at 10.1277.

EM

The Rub remains cautiously optimistic about the seemingly less fractious Russia-Ukraine situation, while the Zar has taken in line SA CPI in stride and is getting a fillip from Gold holding above Usd 1850/oz after its sharp retreat on Tuesday instead. Meanwhile, the Cnh and Cny are unfazed by latest USTR issues raised over the deficiencies of the Phase One trade deal with China or the aforementioned slowdown in CPI and PPI, and the Huf and Pln have both largely brushed off the ECJ’s rejection of challenges to the rule of law lodged by Hungary and Poland against the backdrop of hawkish NBH and NBP monetary stances.

16 Feb 2022 - 10:11- Fixed IncomeData- Source: Newsquawk