Citi

European Open

Markets were muted in Asia following major moves in the NY session. Powell’s comments yesterday endorsing a 25 bps hike saw UST sell-off, with the 10y yield seeing a 15bps rise on Tuesday. Asia session saw a bounce in UST, with yields bull steepening. Oil prices continued climbing, and equities held flat after the move upwards yesterday. Over on the geopolitics front, Interfax reports that the Russian delegation was earlier on its way to the second round of talks with Ukraine today. In Asia, a WSJ report had stated that China was weighing methods for relaxing its zero covid approach. Tourism reliant THB gained on the back of this report. KRW saw authorities noting that they are ready to stabilize markets if needed.

Looking ahead, we will look forward to the continuation of Powell’s testimony at 15:00 GMT, as well as any potential headlines from Ukraine-Russia talks. US data till take a backseat to more Fedspeak from Williams. CAD sees BoC’s Macklem speaking and SEK will see a Riksbank parliamentary heading. CHF receives CPI while EUR sees unemployment data. In EM, we see MYR rate decision, where no change is expected. UAH’s decision on the other hand, has Citi Economists expecting a hike of 100bps to 11.0%. Lastly, we flag IDR is on holiday.

CIBC

FX Flows

Australia produced a very strong trade in January, surplus swelled to A$12.9bn, largest since August. The big rise came from exports which is up 8% while imports fell 2%. On the flipside, building approvals fell to -27.9%, private sector homes fell -17.5%. Trade surplus and strength of the commodity prices did not encourage Aussie bulls. Probably due to the extreme weather conditions in Australia. Hasn’t been kind. AU$ topped 0.7297, drifted little lower. Early afternoon and AU$ drove up to test the offers around 0.7300, breakout artists eyeing 0.7315. In today’s option expiry, small strikes from 0.7275 to 0.7255, about A$900mio at 0.7250.

ASB Bank raised Fonterra’s 2021-2022 milk price to NZ$9.50 per kilo, however NZD$ declined. Offers were met during the move to 0.6798 during the US afternoon. One report wrote that rising commodities persuaded speculators to run for weak stops above 0.6800, unfortunately headed into a bull trap.

$YEN moved higher on back of fixing demand, but I must admit the feel is that some traders are hoping for the best out of the Ukraine/Russian meeting today.

$YEN has been kept bid throughout the morning. Strong ADP, hawkish Fed versus war in Ukraine. Japanese retail day traders love this, they went long yesterday and have started to offload $YEN and will build short position up to 116.00. About $1bn worth of option strikes each at 115.00 and 116.00 mature in coming days.

EUR$ started losing its lustre after Asia gathered. My colleague Jacky believes that the move is pure weak stops near 1.1100. There is a potential double bottom in the hourly chart, we could see some exits if there is a recovery in €AUD which is at the lowest since early 2018.

On the BoC rate decision, the CPI likely to run hotter than we had expected through the first half of the year, odds are that the Bank will deliver the remaining three quarter point hikes we had allocated for 2022 over the next three rate setting dates, rather than spread out through the year. We expect it to then pause at a 1.25% overnight rate to take stock of the direction for growth and inflation, and to let quantitative tightening operate as a tool for adjusting policy, before resuming rate hikes in 2023.