Credit AgricoleAsia overnightIt was a positive day for sentiment in Asia as oil and other commodity prices softened on the back of the UAE saying it is in favour of OPEC-plus increasing its production faster, the IEA saying it would release supplies from its reserves and there appearing to be some small progress in negotiations between Ukraine and Russia. Ukrainian President Volodymyr Zelenskyy said he is willing to consider Russian President Vladimir Putin’s condition for the withdrawal of Russian troops of Ukraine remaining neutral and not joining NATO. Zelenskyy is demanding security guarantees from Germany, US and UK, however, and remains unwilling to give ground on Putin’s territorial claims including the Donbas region and Crimea. All Asian bourses were trading higher and S&P500 futures slightly lower at the time of writing. The USD made a bit of a comeback in Asia and was the strongest performer in the G10 alongside the AUD and CAD. The SEK and JPY were the weakest performing currencies in the G10.CitiEuropean OpenThe latest CFTC COT institutional positioning report shows that oil traders increased their net long positions last week in oil. On the back of recent sales, the uptick in upside exposure last week reflects the higher outlook for oil prices in the wake of Russia invading Ukraine. The violence in Ukraine has fuelled a strong rally in oil prices, which looks set to continue near-term as the war continues.Since the invasion was launched on 24th Feb, oil prices had spike over 40%, trading up from around the $91 level to around $130 at their peak. We’ve since seen a sharp correction lower, however, with prices falling back down to around £112 as of writing. The move lower comes in response to news that OPEC+ is considering raising its oil output above schedule in a bid to combat higher prices. Global leaders have long been calling for the cartel to accelerate its oil output though, up until now, the group has resisted these calls.CIBCFX Flows$YEN reached high 116.01 near the Tokyo fix, no apparent follow through. There was a note from one FX commentary that offers in the 115.90s and some linked to 116.00 option strike worth near $2bn. Took a very long while to chew offers. Even that, seemed small offers kept coming up. Although oil prices have pulled back since yesterday, we do believe Japanese importers are still buying dollars, might be not as aggressive. Besides the option play, Japanese retail traders have also been fading this $YEN rally, established short position. Big resistance 116.35.Believe it or not, at the turn of the hour 8.00 am HK, quite a price action in $CAD, took it under 1.2800 and good selling went through. It was a nasty trigger of “you know what”, printed 1.2791. Once operation was over, we are back at 1.2806. Buying emerged out from Asian names, move lower in commodity prices propelled $CAD towards 1.28405.Broad US$ strength, the AU$, NZ$ and EUR$ have stepped back. All commodity futures are negative, except for copper which is up 0.75%.AU$ slipped to 0.72875, but price action feels like it doesn’t want to. Suspect there are some trying to cover back short positions. I read that both leveraged and IMM accounts amassed fair amount short past week.EUR$ has fallen back but unlike the AU$, seemed to be offered. It could be returning to EURAU$ cross. Not much to speak about offers, there was a note I read that offers lined up above 1.1105. In the options space, €1bn of 1.1020 and €1.8bn of 1.1000 strikes due todayIn our latest FX Weekly, Bipan noted that we are two weeks into Russian/Ukraine conflict and it’s safe to say that we’ll be dealing with the macroeconomic implications for some time to come. The immediate takeaway is that this has now further delayed a return to near-target inflation over the medium-term. Sanctions aimed at Russian financial institutions and the Central Bank of Russia, will effectively remove a significant amount of aggregate commodity supply from the market. Commodities will remain higher for longer. With above developments, we are maintaining long position in the AUD$.
Source: Tickmill
