Citi

European Open

The risk-retreat following the European close on Friday initially continued into the Asian morning. The weekend had seen tensions continue to simmer. This risk-off sentiment evaporated, however, as Élysée presidential palace released a statement confirming President Macron’s proposed summit between US and Russia Presidents Biden and Putin has been accepted by both sides. Oil and equity markets jumped, while DXY sagged. SEK, NOK and AUD led the gains in the FX space while UST markets were closed on account of a US holiday. While geopolitics dominated headlines, China held LPR steady for both the 1-year and 5-year, in line with market expectations. THB saw GDP surprise to the upside.

Looking ahead, EUR will see a slew of Markit PMIs between 0815 and 0900 GMT. SEK sees Riksbank minutes from the February meeting at 08:30 GMT, followed by a speech from Riksbank’s Floden at 13:30 GMT. GBP will see Markit PMI at 09:30 GMT. In the EM space, watch export orders for TWD at 08:00 GMT, PLN retail sales at 09:00 GMT and RON central bank minutes (time unknown). ILS will see a central bank decision at 14:00 GMT, Citi Economics expects rates to be held at 0.1%.

Lastly we remind that the US and Canada will be on holiday.

USD: Price action saw DXY down 0.22%, and JPY flat. Meanwhile, SEK, NOK and AUD led in terms of gains, gaining around +0.5%. We remind that our CitiFX strategists have highlighted how EURSEK has been trading as a proxy for USDRUB as geopolitical headlines have captured market attention of late, which may explain some of the outperformance so far today. PLN was up 0.78%, while ZAR was up 0.48%.

EUR: CitiFX Strategy writes that A likely fragile risk sentiment could pressure EURUSD in the short term. However, they see EURUSD upside in coming months due to: (i) cyclical growth momentum; (ii) an increase in investors’ Eurozone asset allocation, which is much lower that the historical average; and (iii) relatedly, equity rotation towards value-geared Eurozone equities. They favor positioning for upside in EURCHF, EURUSD, and EURJPY; they believe EURGBP will go higher but unlikely before the BoE March meeting; EUR-commodity FX likely to move lower due to supported commodity prices and pickup in global trade.

GBP: UK also sees Markit data in the form of Markit/CIPS UK Services PMI at 09:30 GMT for February P. Citi Economics expects easing supply issues and output acceleration to drive PMI manufacturing to 56.7 in February from 57.0 prior. PMI services should pick up to 55.2 from 54.1 as Omicron constraints and restrictions wane. PMI composite output is similarly expected to rise to 55.4 from 54.2 prior.