Credit Agricole

Asia overnight

Global risk-correlated assets continued trading with a bid tone as confidence grew that the global economy could withstand the triple threat of geopolitical, stagflation and monetary policy tightening risks. Indeed, despite their latest recovery, global energy prices remain well below their recent highs in part because hopes for a ceasefire in Ukraine seem to persist. In addition, Fed Chair Jerome Powell has recently justified the bank’s hawkish shift with the growing resilience of the US economic recovery. The BoJ was the main event during the otherwise quiet Asian session that saw G10 risk-correlated currencies extend their gains vs the JPY, EUR and USD. The BoJ kept its ultra-dovish policy stance unchanged in part because of its gloomier growth outlook on the economy and despite the changing inflation outlook. We expect that Governor Haruhiko Kuroda will reiterate the BoJ’s dovish bias during his press conference and further conclude that a weaker JPY is a net positive for the Japanese economy, keeping the currency under pressure.

Citi

European Open

JPY is a touch softer as markets look to BoJ’s Kuroda press conference to show comfort with FX levels, while our spot desk see two-way flows. We see some signs of exhaustion in G10 FX with volumes running 25% below normal and much lower for AUD and EUR. Following Thursday’s rate hike TWD rallies from the open before paring the move as USD buying shows up with activity running at more than 2x normal. Oil prices continue to rise, which has commodity/energy-linked FX leaning firmer. AUD (+0.4%) outperforms, with gains accelerating as New York session highs are taken out. Rising oil has terms-of-trade back into focus, with the latest warning in PHP, which dropped as much as 0.5% after the central bank revises the current account deficit sharply wider. GBP is calm in the fallout of the dovish BoE meeting, though Citi European Rates Strategists see this as the start of big narrative shift from EUR central bank.

On the geopolitical front, US President Joe Biden is due to hold talks with China President Xi Jinping at 9:00 EST, for the first time since Ukraine/Russia crisis began, where focus is likely to be on China’s willingness to support Russia militarily. EU ambassadors are due to meet to discuss next steps.

Looking ahead, we await RUB rate decision, SEK unemployment rate, before the first batch of Fed speakers following this week’s rate hike. Later sees CAD retail sales and CLP growth data. INR and ILS remain on holiday.