Credit Agricole

Asia overnight

Higher UST yields and weaker technology stocks have led to mixed trading in Asian equities. A modest majority of Asian bourses as well as S&P 500 futures were trading lower at the time of writing. After falling to its lowest level in four years, risk-off trading led to a modest bounce in the JPY and it was an outperformer during the Asian session. The Antipodeans and CAD were the underperformers during the session.

USD: looking for lift-off timing clues in FOMC minutes

The USD has pared back some of its early 2022 gains yesterday, while still enjoying a solid start to the year against most G10 FX peers, and the JPY in particular. The USD has likely benefited from its higher-yielding status in a context of positive risk appetite, as the long-end of UST yields rallied sharply while short UST yields hit their highest levels since the Covid pandemic began. Markets have shrugged off the recent surge in US Covid cases, as concerns that the US economic recovery could be dampened remain fairly subdued.


European Open

The story was one of equities, with a tech stock sell-off being the main story of the day. DXY was flat, with G10 not seeing any notable moves as markets take stock of the upcoming minutes. The UST market was flat as well, although our trader noted that it was an active session. Through the NY session, we saw the DXY rise reverse, although it pared some losses towards the end of the day. The same session also saw Fedspeak and data hinting at a potential stronger hiking cycle in 2022. The early morning in Asia saw some headlines of North Korea appearing to have launched a missile into waters off its coast early today morning. KRW and JPY were not affected much by this news. PHP was the notable outperformer in EM in what seemed like a correction following bearish PHP sentiment.

All eyes will be on the FOMC minutes later today at 19:00 GMT. However, we also note a slew of Markit PMI releases, especially in EUR and BRL. EUR will also sight France Consumer Confidence at 07:45 GMT. HUF will see Central Bank Minutes at 13:00 GMT, while UYU will see CPI YoY at 17:00 GMT, followed by a Monetary Policy Rate Decision (time unknown, forecasts not available).


FX Flows

$YEN was bought over the Tokyo fix, I was informed that Japanese retail day traders have been adding to shorts. USD fell back towards 115.905 where we ran into momentum buyers. I believed we will see more of the buyers between 115.85 to 115.50. There are about $1.8bn of 116.00 options strikes due coming Friday. $YEN declined in the late morning, not much can be said about that move.

It felt like bit of trade unwinding. AUD$ was little change after the December job ads fell 5.5% as supposed to previous +9.9%. There were some A$YEN selling post-Tokyo fix and another bout late morning which brought the cross to 83.76 and AUD$ 0.7227. No word out, we can only suspect pure profit taking. Our trader Jon believes we will see buyers below 0.7200 to 0.7180. Topside hurdle is still 0.7280. Be reminded there are good strikes due NFP day, A$2.1bn at 0.7160 and A$630mio at 0.7200.

OPEC+ decision was consistent with previous approved mechanism and consensus. The announcement was partially priced in and a modest net positive for near-term oil prices. As I write, WTI Feb futures at $76.68 and March contract at $76.39. Canadian real money sold $CAD post-Toronto close, weaker AUD$ and NZD$ put the $CAD higher 1.2716. Intraday support at 1.2641. There are several option strikes worth nothing that expire on Friday, at 1.2700 for $570mio; 1.2675 for $430mio; and 1.2650 for $665mio.