EUROPEAN FX UPDATE: disparate rather than one directional start to March

Analysis details (10:34)

DXY

The Dollar index has drifted down into a relatively confined range within recent extremes amidst another downturn in broad risk sentiment awaiting updates from Ukraine where Russia’s advance on Kharviv and Kyiv continues following no breakthrough in talks for a ceasefire yesterday. However, the Greenback has lost more layers of its safe-haven appeal amidst softer US Treasury yields and a ramp up in commodity prices beyond crude to the benefit of currencies that normally underperform during bouts of risk aversion. Ahead, Markit’s final manufacturing PMI and construction spending are highly likely to be upstaged by the ISM survey, while comments from Fed’s Bostic should essentially repeat what he said on Monday about leaning towards a 25 bp lift-off this month unless inflation remains persistently high.

AUD/NZD

As noted above, strength in certain raw materials, metals and other commodities is offering the Aussie and Kiwi some protection from the overall souring market mood, as Aud/Usd holds comfortably above 0.7250 in wake of ongoing patience from the RBA on a first rate hike, and Nzd/Usd hovers around 0.6780 in the run up to a raft of NZ data including building consents, terms of trade, import and export prices.

CHF/JPY

Not to be outdone, the Franc and Yen retain a firm underlying bid, with Usd/Chf eyeing 0.9150 and Eur/Chf probing a key technical support at 1.0252 that marks the 50% Fib retracement of the huge rebound from all time low to peak just above the old SNB peg (0.8500 to 1.2005 to be precise). Similarly, Usd/Jpy is under 115.00, the 50 DMA circa 114.97 today and yesterday’s low, while Eur/Jpy is well below 129.00 and filling bids around 128.50.

EUR

The Euro has effectively become the Russia-Ukraine barometer in terms of developments that are perceived to be positive and vice-versa, so further sabre-rattling from Russian Foreign Minister Lavrov plus the Defence Minister defiantly stating that the special military operation will go on until all objectives are achieved and reports that Belarussian troops have entered Ukraine territory through the Chernihiv region, according to Ukrainian parliament twitter, are hardly supportive. Hence, Eur/Usd is back under 1.1200 alongside renewed weakness in Eur crosses irrespective of firmer than forecast German state CPI readings alluding to upside beats in the national prints.

GBP/CAD

Both holding up relatively well in the increasingly averse environment, and the Pound may be deriving some traction an upgrade to the final UK PMI along with better than expected BoE mortgage lending and approvals, while the Loonie will be gleaning encouragement from another rebound in WTI to top Usd 99/brl at best pre-Canadian GDP for December and Q4. Cable is clinging to the 1.3400 handle and Usd/Cad is meandering midway between 1.2654-84 parameters.

SCANDI/EM

The Nok is coping better with unfavourable conditions and a slowdown in Norway’s manufacturing PMI compared to the Sek as Brent rebounds above Usd 100 again, but the Rub is paring recovery gains as the invasion rumbles on and other EM currencies suffer degrees of contagion, like the Try, Huf and Pln. Conversely, the Cnh and Cny are still underpinned and the Zar is trying to latch on to Gold’s coattails as it approaches Usd 1920/oz.

01 Mar 2022 - 10:32- Fixed IncomeData- Source: newsquawk