EUROPEAN FX UPDATE: high beta outperformance and hefty option expiry interest

Analysis details (10:33)

DXY

The Dollar and index look destined to finish the week dependent on general risk sentiment and external factors given little prospect of deriving independent impetus from US existing home sales, unless Friday’s quartet of Fed speakers offer anything fresh or pertinent in terms of policy pointers. In truth, currency and financial markets in general have been almost entirely guided by geopolitical dynamics and developments either side of the Russian border with Ukraine ever since the risk of military confrontation reached a critical level, while the Greenback has been even more resigned to the fate of others and outside influences following no further hawkish momentum from the latest FOMC minutes. At present, the mood is tentatively positive as Russia-US talks are scheduled and the Ukrainian Defence Chief contends that the chances of a full-scale assault are low, so the DXY has slipped into another lower range under 96.000 (95.871-727) and sitting tight awaiting the next chapters and chain of events.

NZD/AUD

No real surprise that the Kiwi and Aussie are gleaning most from perceivably less risk of an imminent invasion given their higher sensitivity to fluctuations in sentiment, with Nzd/Aud and Aud/Usd both looking more comfortable above respective round numbers, at 0.6700 and 0.7200. The former is also factoring some premium in case the RBNZ surprises next week by lifting the OCR 50 bp instead of the anticipated 25 bp, while the latter has overcome more dovish RBA guidance, this time via Harper and a deeper plunge in iron ore as it climbs in the slipstream of strength in the Yuan.

CAD/EUR/GBP  

All firmer vs their US counterpart, and the Loonie looking towards Canadian retail sales for near term direction after losing support from WTI crude, but holding above 1.2700 in wake of BoC’s Lane flagging a QE review in March that could culminate in the unwinding of asset purchases. Elsewhere, the Euro is contained well within recent ranges and hardly responding to hawkish-sounding comments from ECB’s Vasle that do not really chime with official guidance or the consensus GC line, and Eur/Usd may be confined either side of 1.1377-57 parameters on any break given large nearby expiries (2.14 bn from 1.1345-55 and 3.76 bn between 1.1375-90). Meanwhile, the Pound is steady after better than expected UK retail sales figures, but Cable remains capped ahead of 1.3650 and the Eur/Gbp cross is still unable to breach support at the post-February 3 BoE hike low, with 1.32 bn expiries at the 0.8350 strike perhaps keeping the pair afloat as well.

CHF/JPY

The G10 laggards as yields bounce from recent lows and risk appetite stabilises amidst bouts of nibbling, while the Franc may also be taking some heed of a slowdown in Swiss Q4 ip and the Yen to softer than forecast Japanese CPI for January. Usd/Chf is back over 0.9200 and Usd/Jpy is back on the 115.00 handle after rebounding close to the 50 DMA that comes in around 114.79 today. Note also, a stack of option expiry interest stretching from 114.70 to 114.15 may be protecting the downside.

SCANDI/EM

Firmer than expected Swedish inflation metrics are likely underpinning the Sek in contrast to the Try after a decline in Turkish consumer confidence, while the Rub is up on aforementioned mostly constructive Russia/Ukraine updates and the Cnh/Cny are extending their advances as China continues to offer more supportive economic measures.

18 Feb 2022 - 10:32- Fixed IncomeData- Source: newsquawk