EUROPEAN FX UPDATE: lots of volatility, but little clear direction overall

Analysis details (10:19)

DXY

95.500 remains almost magnetic for the index, as the clock continues to tick down to Thursday’s CPI data that could prompt a more decisive move in the Dollar and its rivals by default. However, the DXY’s daily ranges are fluctuating marginally and a few components are trying to break out of recent confines in their own right or with external impetus via crosses rather than moves against the Greenback per se. Moreover, there is some scope for deviation from the current 95.676-459 band today given scheduled speeches from a couple of Fed officials, Bowman and Mester, with the latter right on point as she addresses the economic outlook and monetary policy specifically.

AUD/GBP/NZD

The Aussie, Sterling and Kiwi look most likely to breach resistance levels amidst a stronger revival in risk appetite and freer from COVID restrictions or in the process of returning to no preventative measures at all. Aud/Usd is knocking on the door protecting 0.7100, Cable is inching its way towards 1.3600 and Nzd/Usd is establishing a firmer base around 0.6650, as Eur/Gbp straddles 0.8425 and Aud/Nzd pivots 1.0750. Note, the Aussie was hardly rattled by a further deterioration in Westpac consumer sentiment, while the Pound awaits comments from the BoE via chief economist Pill early in the pm session and Kiwi anticipates Q1 NZ inflation expectations and monetary conditions at some point this week.

CHF/JPY/CAD/EUR

All hugging tight lines and familiar terrain vs their US counterpart, with the Franc still tethered to 0.9250, the Yen rotating either side of 115.50 and weighing softer Treasury yields after a rise in JGB equivalents overnight against more dovish BoJ rhetoric, as Nakamura reiterated that the Bank will maintain powerful monetary easing to achieve its 2% price target. Note also, decent option expiry interest in Usd/Jpy between 115.75-80 in 1.4 bn. Elsewhere, the Loonie continues to track crude prices post-disappointing Canadian trade balance update on Tuesday and eyeing BoC Governor Macklem for more guidance, while the Euro is holding above 1.1400 tentatively following another ECB member dampening hawkish market perceptions about rate intentions prompted by latest guidance and remarks from President Lagarde. To recap, Villeroy simply expressed the view that the reaction could be somewhat overdone.

SCANDI/EM          

The Sek and Nok are both drawing traction from the aforementioned pick up in risk appetite, and the former is braced for the Riksbank tomorrow, while the Cny and Cnh have pared some declines from post-Chinese LNY lows irrespective of ongoing angst over the Phase One trade pact with the US. The Zar is also clawing back losses as Gold retains a grip of the Usd 1800/oz in advance of SA President Ramaphosa’s SONA on Thursday and the Rub is extending its recovery amidst reports that Russia took some US security proposals seriously, but the Try remains pressured even though the Turkish Government is said to be on track to launch a scheme aimed at ‘encouraging’ bullion investors to convert their stash into Lira this weekend. The Mxn is on a firmer footing ahead of Banxico tomorrow and the Brl closed a bit higher on Tuesday in wake of hawkish BCB minutes implying a loftier peak in the Selic rate and duly lifting forecasts.

09 Feb 2022 - 10:17- Fixed IncomeData- Source: Newsquawk