EUROPEAN FX UPDATE: Dollar remains firm, but Franc flounders

Analysis details (10:28)

DXY

Little sign of the Buck falling too far as the clock continues to tick down to the FOMC tomorrow, and the index maintains bullish momentum close to 96.000. Indeed, the Greenback held ground even when the risk dial was turning back in favour of US equities late on Monday having flashed red for the bulk of the session, and hawkish Fed perceptions are likely to be propping the Dollar and DXY up given minimum expectations that a hike will be flagged for March, not to mention a potentially earlier start date for QT. Moreover, there are outside chances that tapering might be terminated before schedule and some are not ruling out a 50 bp tightening move to launch lift-off. In the interim, consumer confidence and the 2nd leg of this week’s auction remit in the form of Usd 55 bn 5 year notes fill the void along with breaking news/headlines on the fraught and fractious Russia/Ukraine situation.

CHF

The sheer speed and scale of the Franc’s retreat smacks of official intervention, and proof should be provided via the next update on sight deposit balances at Swiss banks. However, a partial and tentative recovery in broad risk appetite has also sapped the currency’s safe-haven appeal, with Usd/Chf up in the high 0.9100 area vs circa 0.9110 only yesterday and the Eur/Chf cross up around 1.0384 at one stage compared to 1.0301 less than 24 hours ago. Note, decent option expiry interest resides at 1.0325 (1.09 bn), but does not look likely to impact barring a reversion to pronounced aversion.

AUD/NZD

Another day and yet another change in the tide down under, as the Aussie receives a fundamental reprieve from Q4 CPI and other inflation metrics topping consensus and prompting more banks to bring forward RBA rate hike projections. In sum, CBA, RBC and Deutsche Bank are now all looking for a move in August from prior calls of November, February 2023 and May next year respectively. Aud/Usd has reclaimed 0.7100+ status and is straddling 0.7150, with Aud/Nzd back up near 1.0700 from sub-1.0650 and Nzd/Usd trailing behind mostly below 0.6700 in the run up to NZ trade data.

EUR

The Euro is being hampered by bearish technicals and UST/EGB spreads veering wider to the extent that it has not been able to capitalise on two out of three German Ifo survey beats, or the aforementioned indirect impetus from Eur/Chf. In fact, Eur/Usd is struggling to keep tabs on 1.1300 and a Fib just one pip shy, with a hefty option expiry between 1.1300-10 (1.7 bn) also a possible impediment as much as a draw.   

CAD/GBP/JPY

A revival in WTI crude and similarly hawkish vibes for the BoC on Wednesday when a 25 bp hike is tangible, are keeping the Loonie either side of the 1.2650 mark, while Sterling is treading water off worst levels beneath 1.3450 in Cable and 0.8400 in Eur/Gbp even though the political noose appears to be tightening around UK PM Johnson’s neck amidst reports of another illegal gathering at Number 10 and London’s head of police confirming that the force will investigate all the alleged lockdown breaches. Elsewhere, the Yen is staying within sight of 114.00, eyeing the general market tone and Treasury/JGB differentials in advance of the BoJ’s SOO for January.

SCANDI/EM

Some calm after the storm for the Nok and Sek, with the latter perhaps taking heed of a rise in Prospera’s 1 year Swedish inflation expectations in the money markets, while even the Rub is clawing back a bit of lost ground and the Cnh and Cny are consolidating off latest multi-year highs. However, the Try has not gleaned lasting comfort from an improvement in Turkish manufacturing confidence or the CBRT 3 month Gold swap auction and the Sgd only got a fleeting fillip from a tighter MAS band in rapid intra-meeting response to strong inflation.

25 Jan 2022 - 10:27- Fixed IncomeData- Source: newsquawk