EUROPEAN FX UPDATE: some respite as Russia sends troops back to base

Analysis details (10:46)

DXY

It’s far too early to talk about a turnaround Tuesday in terms of broad risk sentiment, but price action indicates that markets are less fearful of the situation reaching all out war proportions at the Russian border with Ukraine after a few conciliatory remarks from Russia’s Foreign Minister Lavrov yesterday and the subsequent end of military drills that has culminated in Western and Southern army units returning to base camp. Hence, the inference is that an attack might not be as imminent or indeed likely as many officials have been suggesting, and safer havens are backing off in response to the benefit of high beta, cyclical and other currencies/assets, while crude is unwinding more of its supply premium to the relative detriment of the petro bloc. However, the Dollar retains a decent amount of Fed policy momentum and the index is sitting tight around 96.000 having found underlying bids a fraction under the round number and fading below Monday’s peak within a 95.985-96.301 range compared to 95.904-96.441. Ahead, NY Fed manufacturing survey and more inflation data following last week’s hot CPI metrics via PPI.

EUR

The Euro is especially relieved with no further escalation in Russia-Ukraine tensions, aside from the Rouble and Hyrvenia of course, as Eur/Usd embarks on a firmer bounce from sub-1.1300 lows to trade back above 50 and 21 DMAs. However, upside progress may be hampered by ECB/Fed differentials assuming Villeroy adheres to the line that markets may have overreacted to the inflation pivot earlier this month. For the record, no major reaction to in line Eurozone GDP or marginal misses in ZEW economic sentiment or current conditions.

NZD/AUD/GBP

It’s nip and tuck down under after the Kiwi got an overnight boost from China upgrading its FTA with NZ, but the Aussie was undermined by an even bigger collapse in iron ore prices amidst the ongoing Chinese crackdown on ‘irregularities’. Nzd/Usd extended gains on the 0.6600 handle to just shy of 0.6650 before Aud/Usd caught up and breached 0.7150 at best to lift Aud/Nzd back over 1.0750 irrespective of RBA minutes reinforcing patient guidance. Elsewhere, some independent impetus for Sterling via stronger than expected UK wages as Cable reclaims 1.3350+ status and a technical boost given its rebound through 50 and 21 DMAs in similar vein to the Euro.

CAD/JPY/CHF

The aforementioned recoil in oil, with WTI sub-Usd 93/brl from nearly Usd 96 at one stage yesterday has capped the Loonie to an extent, though hefty option expiry interest from 1.2700 to 1.2695 (2.05 bn) may act like a magnet either side of Canadian housing starts. On that note, 1.2 bn between 115.90-116.00 could cushion the Yen as risk appetite returns and Usd/Jpy straddles 115.50, while the Franc continues to pivot 0.9250 vs its US peer, but has handed back gains against the Euro to 1.0500+, albeit briefly.

SCANDI/EM     

Not much time for the Nok to appreciate another bumper Norwegian trade surplus as Brent reversed course, but the Sek is holding firm in the more favourable risk climate in wake of Riksbank Floden playing down the rise in underlying inflation. The Rub is up as Russian Foreign Minister Lavrov says the nation will continue dialogue with the West, and results are achievable, the Zar is taking a reversal in Gold fairly in stride, but the Try remains pressured after Turkey mandated banks for a Usd denominated Sukuk.

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