EUROPEAN FX UPDATE: commodity bloc leads comeback from post-NFP lows

Analysis details (10:39)

DXY/AUD/CAD/NZD

The Dollar and index retain some US jobs data momentum, but are off Friday’s recovery highs amidst rebounds in cyclical currencies and others benefiting from various fundamental and technical factors. However, the DXY is pivoting 95.500 within a 95.623-426 range ahead of the next top tier macro release that could be pivotal for Fed policy as markets continue to weigh up the magnitude of lift-off at the March FOMC. This arrives on Thursday in the form or CPI, and prior to that several Fed officials will get a chance to react to the latest BLS report that was largely stronger than expected. Meanwhile, the Aussie is outperforming with assistance from ongoing strength in iron ore plus a record rise in retail sales and news that the country will lift the ban on foreign visitors for the first time in two years from February 21. Aud/Usd is eyeing 0.7100 and the Aud/Nzd cross is probing 1.0700 even though the Kiwi is back above 0.6600 vs its US peer, partly on improving risk sentiment and positioning as IMM data showed a further paring of net Greenback longs. Elsewhere, the Loonie is getting over its Canadian LFS disappointment with the aid of WTI holding above Usd 90/brl within wide Usd 90.76-92.73 extremes, as Usd/Cad meanders between 1. 2762-08 parameters ahead of trade data on Tuesday.  

CHF/JPY/GBP  

All fractionally firmer against the Buck, with the Yen deriving some respite via a dip in US Treasury yields and the fact that it held above 115.50 ahead of a key Fib retracement level at 115.67, but resistance looms just below the round number in the guise of a daily trendline at 114.91, while Japanese household spending is due tonight and could be adversely impacted by the nation’s tighter COVID restrictions. The Franc is straddling 0.9250, while clawing back some of its hefty declines vs the Euro post-hawkish ECB from sub-1.0600 following a dip in Switzerland’s sa jobless rate and latest bank sight deposit balances showing little in the way of official intervention last week, and it’s a similar story for Sterling after the BoE’s hawkish hike last Thursday was almost completely overshadowed by the aforementioned ECB. Cable is clinging to the 1.3500 handle, but capped around 1.3550 and a Fib just a couple of pips beyond, while Eur/Gbp is off highs around 0.8470 and testing bids/support near 0.8450 irrespective of even more pressure for a confidence vote in UK PM Johnson.

EUR      

The Euro is lagging most majors after leaping so far on the back of the ECB, though it should glean underlying traction if nothing else from yet another spike in EGB cash rates and rout in futures that is propelling 10 year benchmarks from the core and across the periphery towards/through more psychological levels. Eur/Usd just evaded reported stops close to last Friday’s NFP base and is contained inside pre-weekend session boundaries (from 1.1415-67 vs 1.1411-87) awaiting further commentary from President Lagarde who is up before EU Parliament from 15.45GMT.

SCANDI/EM

The Nok has been rattled by Brent’s reversal from Usd 94/brl, while the Cnh and Cny have returned from the extended Chinese Lunar New Year break on the back foot after the PBoC chose to set a considerably lower than expected onshore Yuan midpoint fix, not to mention slowdowns in Caixin services and composite PMIs that saw the latter only just stay afloat of the 50.0 mark. Moreover, angst with the US is rising again over the Phase One trade deal. Back to the Cny, Citi suggests that the weaker fix appears to be in line with PBoC efforts to slow the Yuan’s appreciation to help stabilise growth. The bank also sees further easing measures ahead, forecasting that the MLF rate will be cut by another 10bps at the February 18 meeting, and the PBoC will likely renew CNY 200bln of maturing loans, with these moves likely to be followed by same size cuts in 1yr and 5yr LPRs on February 21.

07 Feb 2022 - 10:36- Fixed IncomeData- Source: newsquawk