CIBC

FX Flows

Market began with little risk-off which didn’t last. About an hour after Asia opened, risk came back. Like I said, there is not particular news. So what really happened? Well, having talked to few macro and including our trader Jon, the recovery in risk is all about taking money off the table. Swings have been volatile and prompts momentum-driven traders to take profit.

$CAD was bought towards the Toronto close, move began 2 minutes ahead the top of the hour, we believed it is ETF-related. Once the buying was completed, $CAD slipped away, maybe someone missed a sell order or could be option desks gamma trading, the pair backed off to 1.2814. $CAD didn’t make it back to the top even with small risk off, soon backed off towards 1.2800. Today, Canada will publicise Jan international trade, we are in line with consensus at +C$1.5bn from -C$0.14bn.

EUR$ recovered to 1.0884, felt as though market is pretty short, especially the leveraged names. Only IMM-type names are long. If there is, we could see a squeeze towards 1.0920s. There is a chatter of an option barrier at 1.0800 and some stops thereafter. We also believe there was an unwinding of €AUD went through.

From a technical standpoint, AUD$ got to 0.7441 yesterday and closed at 0.7317, wouldn’t it be a key reversal? Good data out this morning, better household spending and business confidence but these didn’t matter. AUD$ bounced back to 0.7347 on the move in equity futures. Wheat futures jumped at the beginning but later declines near 7.1%. That too didn’t move the AUD$. Risk pared and AUD$ returned to 0.7318, probably from unwinding of €AUD. Reminder that RBA Governor Lowe will be speaking at the AFR Business Summit 2022 at 6.15 am Hong Kong.

$YEN ran into offers above 115.50, even with the recovery of risk, the USD didn’t make much effort. I suspect Japanese retail traders are taking the opportunity to go short. My colleague in Toronto Sean McGoldrick recommended buying 1-month $YEN call strike 116.00. Sean said Japan imports ~85% of its energy needs. This risk off, YEN did not appreciate unlike the past. That’s because beyond the tragedy of war and the humanitarian impact, this is first and foremost this is an energy crisis more especially for Japan. Importers are buying dollars more aggressively as oil prices continue to rise. Sean said we can see the $YEN spot tracking oil higher since September of last year.

Citi

European Open

An uneasy calm fell upon markets in Asia as Russia/Ukraine headlines took a breather. Some of Tuesday’s panic signs begin to evaporate with SEK eking out a small outperformance in G10, on the heels of Monday’s 1.5% loss, while our option desk flags EURUSD risk reversals are seeing some supply, which followed relentless EUR Cross put demand during New York. AUD struggled (-0.4%) as positions get appear to get pared down with our spot desk highlighting the market sits very long. Treasuries yields drifted higher with our desks seeing better selling in the long-end. CNH outperforms after a much stronger than expected fix. KRW slides and remains at the mercy out stocks outflows, while THB also struggles with a hangover from biggest stocks/bond outflows since November on Monday.

Looking ahead, we remain cautious as markets watch geopolitics closely. In terms of data, German Industrial Production is due while National Bank of Poland are expected to hike rates, in the latest tightening move by CEEMEA central bank.