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Risk Backdrop Filters Through To Greenback Recovery

  • A volatile start to the week across currency markets as reports emanating from China surrounding rising covid cases and bouts of social unrest dampen global risk sentiment. Despite the greenback initially opening on the front foot, two substantial reversals have occurred during Monday’s European and US trading sessions.
  • Weighing on the greenback as Europe sat down was the significant move lower in USDJPY, which reached fresh three-month lows at 137.50. Filtering through to the broader USD complex, currencies such as the Euro that had gapped lower at the open saw swift reversals as those gaps were bridged. Short-term positioning then accentuated the dollar weakening over the course of the European morning.
  • Looking at Euro in particular, marginal hawkish ECB rhetoric provided and additional tailwind which saw EURUSD rise to fresh recent highs of 1.0497 and given the poorer risk profile, Euro crosses such as EURAUD saw significant upside, at one point rising as much as 1.5%.
  • However, the overall USD index weakness was short-lived as the continued grind lower for equities filtered through once again to safe haven demand for the greenback. The index currently sits around 1% off the lows, up 0.3% on the day approaching the APAC crossover. This late dollar demand was also aided by continued hawkish rhetoric from Fed officials focusing around the central bank having “more work to do”.
  • On Tuesday, markets will see German and Spanish CPI data as well as Canadian GDP and US consumer confidence. Eurozone CPI data and US employment remain the key data points in focus later this week.

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