Credit Agricole

Asia overnight

Investors appear stunned at the moment. US inflation came out in line with market expectations and led to little further moves in market pricing for the Fed and UST yields. Indeed, even further hawkish speak from FOMC members did not really move rates markets. The USD did move, however, as investors exited long positions, which saw a collapse in the currency during North American trading. In the Asian session, investors seem to be waiting for the next impetus. Eyes are on China, where there are newswire reports that Chinese authorities have told local banks to restrict property loans to local governments. A majority of Asian bourses and S&P500 futures were trading lower at the time of writing. G10 FX remained stunned in the wake of the USD’s collapse and was range-bound during the Asian session.


FX Flows

EUR$ didn’t do much but better bid. The upward momentum ran into some hedging activities from North Asian accounts. Believe there are offers located in the 1.1460’s, previous high was 1.1464 on November 15. In terms of option strikes, plenty on the downside, nearest 1.1425 for €1.45bn. Two ECB speakers, Guindos and Elderson.

$CAD got below the 200-day SMA 1.2501 only briefly, looking to test overnight’s low 1.2496. Small selling of ¥-crosses in the late morning, AUD$ backed off and $CAD popped back onto 1.25-handle. Real test could be 1.2493, previous low from November 16. There are several option strikes rolling off tomorrow, $400mio at 1.2485, $840mio at 1.2500, $400mio at 1.2510 and $1.11bn at 1.2525.

BoC meets on the January 26, forecast is unchanged but there is one US bank who’s calling for BoC rate hike. Our macro strategist Bipan wrote Canada’s stature as a smaller, export[1]dependent economy, it’s usually the BoC that tends to lag the Fed when it comes to shifting monetary policy. There have been a few exceptions of course – in 2002/03 and 2010, BoC raised rates without the Fed following suit. However, in both of those instances, there was untoward pressure on the CAD that adversely impacted real economic activity and contributed to undermining the inflation mandate. As a result, those same rate hikes were taken back with cuts before the next hiking cycle began from the Fed.

AUD$ resistance 0.7300-05 area, will be interesting to see if it will withstand the challenge. Data-free until next week’s crucial December employment data.


European Open

Waters were calm during the Asian session post the strong US CPI yesterday. USD was seen mixed against the G10, with no notable moves, while UST front end yields were down a touch. Equities and energy trickled lower as well. USD Asia was flat as well. Overnight, Fedspeak reinforced front end pricing, while as Russia talks continue to produce headlines. We also note that the US senate will be considering Nord Stream 2 sanctions later today.

Fedspeak will be the main highlight of the day, however, with the Senate hearing for Brainard at 15:00 GMT, and Barkin (17:00 GMT), Evans (18:00 MGT) and the Dallas Fed town-hall discussion at 23:00 GMT. GBP will want to note that UK foreign minister Liz Truss, will meet the EU’s chief negotiator Maris Sefcovic today.