China COVID Positives Support Risk, BBDXY Shows Below Its 50-DMA

The U.S. dollar struggled to find poise and the BBDXY index showed at its worst levels in more than a month, probing the water below its 50-DMA for the first time since the outbreak of Russia's war on Ukraine on Feb 24. Note that U.S. bond markets will be shut until Tuesday, in observance of the Memorial Day holiday.

• Positive market sentiment triggered light risk-on flows across G10 FX space, as regional stock indices crept higher in tandem with U.S. e-mini futures. Further easing of COVID-19 restrictions in Beijing and Shanghai, and a fresh package of economic support measures announced by the latter megacity, sparked optimism.
• The yen fared better than its safe haven peers USD and CHF, which sit at the bottom of the G10 pile. Comments from BoJ Gov Kuroda may have provided some support. The official told lawmakers that the yen has "relatively stabilised" and refused to admit that the BoJ's ultra-loose monetary policy was behind its earlier depreciation.
• Commodity-tied currencies led gains in F10 FX space amid firmer crude oil prices. The kiwi gains alongside its high-beta peers, as the RBNZ's new Chief Economist Conway expressed optimism about the Bank's ability to engineer a "soft landing" for the economy and said the MPC did not seriously consider a 75bp rate hike last week.
• Offshore yuan posted sharp gains, with USD/CNH quickly narrowing in on last week's lows. Aforementioned positives surrounding COVID-19 dynamics seemed to occupy the driving seat.
• German CPI & Swedish GDP as well as speeches from Fed's Waller and ECB's Centeno & Nagel take focus from here. Elsewhere, EU leaders will begin their two-day special summit devoted to Ukraine, energy, defence & food security.