EUROPEAN FX UPDATE: Greenback regains yield appeal as Euro loses ECB clout

Analysis details (10:46)

DXY

The Buck is off best levels and still struggling to extend its post-payrolls gains vs high beta and cyclical currencies, but the index has rebounded further from Monday’s pull-back lows within a 95.396-754 band as at least four basket components retreat amidst a reversion to bear-steepening along the US Treasury ahead of the Quarterly Refunding and CPI data. First up, NFIB business optimism and trade are due before Usd 50 bn 3 year notes are offered into a market still unsure whether the Fed will kickstart tightening in March with a 25 bp or 50 bp hike.

EUR/JPY/CAD   

ECB President Lagarde got the ball rolling and a few other GC members have subsequently made noises that appear less hawkish than the overall message from last Thursday’s official policy statement and certainly the post-meeting press conference. To recap, speaking at the EU Parliament yesterday the former warned against being too quick to factor in the extent that rates will be hiked and underscored the cautionary remark by playing down the prospect of a ‘measurable’ amount of tightening. Hence, the Euro is unwinding more of its premium and Eur/Usd dipped below 1.1400 from descending highs either side of the weekend with decent option expiry interest at the round number (1.3 bn to be precise) perhaps offering some underlying support. No big expiries to provide the Yen any protection, though offers are touted around 115.50 and could cap the advance in Usd/Jpy following disappointing Japanese household spending, an unexpected swing in the current account from surplus to deficit and a decline in the economy watchers poll reading. Elsewhere, the Loonie is recoiling along with oil having run out of momentum before testing several chart targets sub-1.2650 or the half round number and Usd/Cad is peering at 1.2700 as a result in the run up to Canadian trade.    

NZD/GBP/AUD/CHF         

At the other end of the major spectrum, relative Central Bank policy stances and cycles are underpinning the Kiwi and Sterling to a degree, while Nzd/Usd is also firmer on the 0.6600 handle as ASB bank ups its RBNZ OCR outlook to 2.75% by early next year from 2% previously. Meanwhile, Cable has probed 1.3550 and a Fib retracement level just above with indirect assistance from the Eur/Gbp cross reversing further from recent highs to test support and underlying bids ahead of 0.8400 following a breach of the 50 DMA (at 0.8419 today). However, the Pound may be blocked by 1.53 bn option expiries at the 1.3560 strike as much as buffered by 1.05 bn between 1.3495-1.3510. Back down under, the Aussie is also looking more comfortable vs its US counterpart on its nearest big figure at 0.7100, but capped into 0.7150 following a mixed NAB business survey (confidence much improved, but conditions worse) that offset hawkish RBA calls from ex-Board member Edwards who sees tightening starting in August and thinks there could be four rate hikes this year, and ANZ that believes every meeting from June onwards will be ‘live’. The Franc remains range around 0.9250 vs its US peer, but still clawing back lost ground against the Euro to the extent that 1.24 bn option expiry interest from 1.0595-1.0600 looks almost irrelevant given that Eur/Chf sits some way south of 1.0550 at present.

SCANDI/EM

No surprise that the Nok has backed off after failing to breach 10.0000 vs the Eur as Brent hovers just over Usd 90/brl compared to a Usd 94 apex on Monday, while the Sek derived little support from a slew of mixed Swedish data and the Cnh/Cny has not really welcomed reports that Chinese State funds bought stocks to stem the tide after another softish PBoC onshore midpoint setting and withdrawal of liquidity.

08 Feb 2022 - 10:44- Fixed IncomeData- Source: newsquawk