EUROPEAN FX UPDATE: markets remain hostage to headline risk

Analysis details (10:26)

DXY/JPY

It’s tough to determine just how much attention and time was allotted to digest last night’s FOMC minutes, but suffice it to say that the takeaway left the Dollar under pressure given no indication that other Fed officials share the same level of hawkishness as Bullard. However, the Buck subsequently bounced as oil tanked on reports that the US and Iran are getting close to a nuclear deal before news broke about a mortar attack in East Ukraine that pushed the spotlight back to that geopolitical hotspot where it remains amidst conflicting accusations from both sides of the border. The upshot, renewed safe-haven positioning with the Greenback caught in the crossfire to an extent as the index strives to stay within touching distance of the 96.000 level after slipping to a minor new w-t-d low at 95.677 on Wednesday and bouncing mildly between 95.725-96.109 parameters. For what it’s worth, jobless claims, housing data and the Philly Fed are scheduled later before Fed’s Bullard and Mester, but currencies are glued to geopolitical headlines beyond all else. Indeed, the Yen is outperforming across the board irrespective of apparent negatives like a wider than forecast Japanese trade gap and downgrade to the Government’s overall economic assessment as Usd/Jpy tests support around 115.00, including a Fib retracement aligning with the base of option expiry interest, at 114.90 and 1.45 bn up to the round number respectively.

NZD/AUD/GBP

The Kiwi looks somewhat out of place in the current risk averse or flaky at best climate, but could be benefiting from Aud/Nzd tailwinds as the cross retreats through 1.0750 and the Aussie labours above 0.7200 in wake of a mostly upbeat jobs report that was only really tainted by a decline in full time employment. Meanwhile, iron ore continues to collapse and Nzd/Usd might be underpinned near 0.6600 on hedges ahead of next week’s RBNZ policy meeting for a 50 bp hike rather than the +25 bp consensus. Similarly, the Pound may be deriving impetus from Eur/Gbp as it retreats further from peaks to sub-0.8350 terrain, though Cable has also breached some resistance above 1.3500 on its way to probing 1.3600.

CHF/EUR/CAD

Safe-haven demand and softer global bond yields are underpinning the Franc just below 0.9200 vs its US peer and 1.0450 against the Euro, while a narrower Swiss trade surplus hardly impacted. Conversely, the single currency has retreated due to renewed/heighted Ukraine invasion risk, with Eur/Usd trying to hold circa 1.1350 and the Loonie is handing back more of its admittedly modest post-Canadian inflation gains against the backdrop of recoiling crude prices, with Usd/Cad back over 1.2700.

SCANDI/EM

Wobbly at best risk sentiment is weighing on the Sek and Nok as opposed to firmer Swedish inflation expectations via money markets vs more dovish Riksbank views on the price and wage front via Bremen, or lower Norwegian oil investment forecasts for Q1. However, the Rub is markedly underperforming for obvious reasons and the Try is treading cautiously ahead of the CBRT as Turkish President Erdogan trots out his usual mantra about freeing the country from the chains of high interest rates and getting inflation back down to single digits.

17 Feb 2022 - 10:25- Fixed IncomeGeopolitical- Source: Newsquawk