USD Generally Firmer In Asia

The broader USD was bid in Asia-Pac dealing, finding some demand ahead of Thursday’s major risk events (see below for more on that), while some worry from the U.S. re: the potential for Russia to deploy chemical and/or biological weapons in Ukraine also played into the USD bid. A softer than expected CNY fixing pushed flows further in the USD’s favour, although the mover has moderated from extremes.

• EUR/USD lost some ground on the aforementioned USD bid, with the rate last dealing ~20 pips lower around $1.1050. Still, the recovery from fresh cycle lows registered earlier in the week has been impressive. Note that the EUR was the second worst performing currency in the G10 FX sphere in YtD terms come the close of play last week (with only the SEK providing worse YtD performance). Fortunes have changed during the current week, with the EUR finding itself second in the G10 currency sphere (only bettered by the SEK).
• The combination of buoyant Japanese equity markets, a generally firmer dollar in the G10 FX space, an uptick in oil (the level of Japan’s dependence on energy imports leaves it particularly exposed to crude price dynamics) and Tokyo fix-related demand pushed USD/JPY higher. The rate prints 25 pips firmer on the day, sitting at Y116.10. A reminder that meaningful resistance is located at the Feb 10 high/Jan 4 high & bull trigger (Y116.34/35).
• AUD fared better than most of its peers, looking through the unexpected resignation of RBA Deputy Governor Debelle, trading flat vs. the USD into European hours.
• The latest ECB monetary policy decision headlines the Eurozone economic docket on Thursday. Having appeared to be gearing up to normalise monetary policy, the ECB’s calculus has now changed following the Russian invasion of Ukraine. For the time being, the direction of travel for monetary policy remains unchanged, but any momentum building behind a near-term tightening has subsided. The ECB will reconfirm the December policy calibration, but the narrative on the medium-term inflation outlook will now reflect the new two-way risks that have resulted from the Ukrainian crisis. U.S. CPI data then provides the focal point during NY hours. Participants will also look to the headlines surrounding the face-to-face meeting of the Russian & Ukrainian Foreign Ministers.