Optimism Dominates

Reflation trade dynamics drove risk-on flows seen at the start to the week, bolstering high-beta currencies against their safe haven peers. Activity across the region was limited by market closures in China, Taiwan & HK as well as today's public holiday in the U.S. JPY lagged all of its G10 peers as the Nikkei 225 crossed above 30,000 for the first time since 1990 & all three U.S. e-mini contracts printed fresh all-time highs. The yen faced additional headwinds from above-forecast preliminary Q4 GDP data released out of Japan & the potential impact of Gotobi day flows.

• With the risk switch flicked to "on," the kiwi managed to shake off its initial weakness. The Antipodean currency started on a slightly softer footing after NZ gov't imposed a three-day lockdown in Auckland & raised the alert level in the rest of the country to 2 after finding three Covid-19 cases in the community over the weekend.
• Sterling advanced after PM Johnson announced that England met its target for offering the Covid-19 vaccines to 15mn people from four priority groups by mid-Feb, reaching an important milestone in its inoculation campaign. GBP registered fresh cycle highs vs. the likes of USD, EUR & JPY, with cable showing at levels not seen since mid-2018.
• USD/CNH went offered in holiday-thinned trade, printing a new 32-month low.
• Focus moves to EZ industrial output & trade balance, Canadian housing starts & m'fing sales as well as Norwegian trade balance.