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Initial USD Strength Unwinds, Swiss Franc Outperforms

  • The US Dollar Index gapped higher at the Sunday night open amid severe pressure on equities as geopolitical developments weight on global risk sentiment over the weekend.
  • Throughout the course of Monday trading, amid the recovery in global equity benchmarks, the greenback gradually edged lower, erasing almost the entirety of the gap to Friday’s close.
  • The Swiss Franc had the most notable move on Monday with EURCHF currently within a few pips of Thursday’s lows at 1.0279, a breach of which would see the pair at the lowest levels since 2015.
  • Commodity gains, and in particular the four percent gains in crude futures, prompted strong recoveries from the likes of AUD, NZD and CAD, all bridging the gaps at the open and extending their resilient performances throughout US trading hours.
  • Despite a firm bounce for the euro, the single currency remains around 0.5% lower against the dollar. EUR underperformance largely down to the struggling crosses such as EURJPY (-1.05%) and EURCHF (-1.42%).
  • FX hedging activity via options surged on Monday, with markets rushing to hedge EUR exposure vs. both USD and AUD aswell as USD/CNY across Asia-Pac hours.
    • Options volumes are running higher alongside implied volatility metrics, with front-month implieds for EUR/USD nearing 8.50 points for the first time since H2 2020.
    • Risk reversals contracts tell us that markets are favouring EUR/USD downside protection, with markets now pricing a 29.3% implied probability for the pair to trade below 1.11 in one month's time (a horizon that captures both the next Fed and ECB rate decisions). This implied probability was just 16.6% this time last week.
  • While the USD/RUB rate did gain as much as 35%, the CBR's snap decision to more than double domestic interest as well as the rebound in broader sentiment did support the Ruble off it’s worst levels as Monday progressed.
  • Overnight Chinese manufacturing PMI data will kick off the Asia-Pac session before the March RBA meeting/decision, where little adjustment to the RBA’s tone is expected.

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