Risk Switch Flicked To On Ahead Of Yellen's Hearing

Markets switched into a risk-on mode ahead of the much awaited congressional testimony from Tsy Sec nominee Yellen. A market contact flagged speculation surrounding her upcoming address as a potential risk-supportive factor, with her 2016 comments re: running a "high-pressure economy" providing a point of reference. Firmer risk sentiment prompted participants to dump JPY, which landed at the bottom of the G10 pile. USD/JPY attacked the Y104.00 mark but failed to make much headway beyond that level. As a reminder, $1.1bn of options with strikes at Y103.90-104.00 expire at the NY cut, with $1.4bn of options with strikes at Y103.00 also due to roll off.

• The greenback was the second worst performer in the G10 basket, as markets have already discounted yesterday's WSJ piece suggesting that Yellen will advocate a market-determined FX rate.
• Commodity-tied FX gained on the back of better risk appetite. AUD outperformed its G10 peers but the rally in AUD/USD was limited by the imminent expiry of $1.2bn worth of options with strikes at $0.7700.
• USD/CNH edged away from session lows after NDRC head Yan poured cold water on chatter about a potential policy scale-back/exit this year, noting that there will be no sudden shift in monetary policy in 2021. Spot USD/CNH operated within a narrow range just shy of the CNH6.5000 figure.
• Focus turns to German ZEW Survey & final CPI report, as well as comments from BoE's Haldane, in addition to the aforementioned remarks from Janet Yellen.