EUROPEAN FX UPDATE: risk sentiment rattled by Russia-Ukraine rift

Analysis details (10:23)

DXY  

Not much respite for markets following no further escalation in hostilities between Russia, Ukraine and the West over the weekend as US officials continue to warn about the potential for military action by Moscow, possibly as soon as Tuesday. In fact, risk assets and the more highly sensitive currencies hardly got a breather at all, while even oil has come right off the boil to indicate how jittery investors are about the threat of an incursion and repercussions. On that very note, G7 Finance Ministers issued a joint statement to express grave concern over the build up of Russian forces along the border, adding that any aggression will be met with a swift, coordinated and forceful response, while the Group is ready to collectively impose economic and financial sanctions that would have consequences for Russia. So, a continuation of safe-haven positioning to the benefit of the Buck broadly, but not exclusively given demand for the Yen, Franc and Gold to varying degrees. The index secured a firmer grip of the 96.000 handle as a result and topped recent highs within a 96.328-95.904 range, leaving only the 96.500 level to aim at ahead of the current 96.725 m-t-d peak from February 1st ahead of comments from Fed’s Bullard and a closed door Board Meeting that does not involve Regional Presidents, so should not be monetary policy related.

JPY/CHF

As noted above, the Yen and Franc are bucking the overall trend of weakness or underperformance vs the Dollar due to their safety attributes, with Usd/Jpy retreating further from almost twin 2022 peaks towards 115.00, while Usd/Chf is back below 0.9250 and both Eur crosses are softer as another proxy for the deteriorating tone. Note, Swiss producer/import prices picked up pace in January, but hardly impacted and the latest weekly update on sight deposits suggests that domestic banks stepped back in to curb Franc strength.

EUR/CAD/GBP/AUD/NZD

All on the back foot against the Greenback, and the Euro is clinging to 1.1300+ status having slipped through a series of technical levels including 21 and 50 DMAs, a daily cloud formation and Fib retracement (at 1.1331, 1.1326, 1.1317 and 1.1309 respectively) awaiting more remarks from ECB President Lagarde who appears at two events today and was cautious about tightening too early when she last spoke on February 10th. Elsewhere, the Loonie has lost underlying support via crude prices as it straddles 1.2750, Sterling is striving to keep sight of 1.3500 following a retreat below 1.3550 and the 21 DMA (at 1.3531 today), the Aussie is just under 0.7100 after a slide in iron ore overnight and the Kiwi is hovering fractionally above 0.6600.

SCANDI/EM

The absence of any risk appetite is weighing heavily on the Sek and Nok even though Norway has removed all remaining COVID restrictions, while the Rub and Uah are obviously undermined by the precarious geopolitical tension, and the Try has suffered a Turkish ratings downgrade at the hands of Fitch to offset fresh measures to support the Lira and a huge VAT cut on staple foods aimed at lowering inflation. Conversely, stronger than expected Czech inflation data should keep the CNB firmly in tightening mode to offer the Czk traction.

14 Feb 2022 - 10:21- Fixed IncomeGeopolitical- Source: newsquawk