Investment Bank Outlook 10-05-2022

CIBCFX FlowsEarly birds paid $YEN up to 130.575, no headlines, one Japanese friend said to me he saw US banks hitting the offers. I believe the move could be due to the positive start in the US equity futures. Things turned sour, e-minis pared gains and $YEN reversed back. Demand for the Tokyo fix cushioned the selling pressure. Market was steady until Finance Minister started to talk, usual comments and he repeated that he is in close communication with US on FX. $YEN sold down to 129.80. Things reversed by mid-morning, BoJ Uchida said rate hike is not suitable prompted everyone to jump back in.Weak risk appetite walked the AU$ down to 0.6911. There was chatter of €AU$ short covering and stop loss selling of AU$¥ through 90.00. April business sentiment was mixed, conditions strengthened but confidence eased. First quarter’s retail sales rose 1.2% against estimates of +1.0%. AU$¥ bounced back onto 90-handle, little help from BoJ Uchida and AU$ went bid. Intraday resistance now at 0.6968, better at 0.7000. Not much can be said in terms of option expiry today. I kind of like AU$¥ higher, lets hope for Turnaround Tuesday.The Financial Times put out a story that European Union has decided to abandon plans to put a ban on European shipping industry from carrying Russian crude as it struggles to push through its latest sanctions package because of anxiety among some member states about the economic impact of the measures. The proposal which was put up last week was dropped by the Commission after hard lobbying by Malta and Greece.EUR$ benefitted from turnaround in risk sentiment, flows were light. Offers mentioned in the 1.0590s… could be linked to 1.0600 option strikes and fresh buying appeared above 1.0550.$CAD rose to 1.3037, very good two-way business seen 1.3020-30. There are some topside barrier options starting small at 1.3040, then above 1.3070 and I believe is a big one at 1.3100.Our macro strategist Bipan posted a piece on $CAD and the upside risks. The trade-weighted US$ has been on a tear over the past month. But even with the relentless bid in the US$, realized volatility in $CAD has been muted for some time now when compared to the majors. There are a few reasons, firstly monetary policy in both Fed and BoC has been largely consistent. Both now seem bent on getting the benchmark policy rates back to neutral in order to curb generational levels of inflation.Second, both benefitted from loose fiscal policy from prior years. Thirdly, the beta to oil prices has been reduced greatly over time. However, in FX world, volatility regimes are rarely permanent. If you’re looking at possible catalysts that could lead to realized vols in $CAD picking up, the most potent one would be a divergence in BoC and Fed tightening policies. Vols remain rich, so our bias is to continue to look at cash/STIR for opportunities. $CAD has been probing above the 1.2950 area today, and a close above that level should clear the way for a move towards the 1.3300/50 area over time.CitiEuropean OpenThe day started with risk assets down in a continuation of themes from yesterday. However, the narrative changed as the day progressed, with stocks bouncing higher. UST yields traded flat, after some initial bull-steepening. FX saw DXY slightly lower, while high-beta currencies performed. AUD sat top of the G10 complex. Over in EM, CNH was up sharply, reversing weakness in prior sessions as domestic stocks turned higher. Earlier in the day, we had a report from the Securities Daily that Chinese Yuan was unlikely to see further sharp drop, citing analysts. Oil continued its slow slide lower in the Asian session.Looking ahead, we see the resumption of Fedspeak, with Williams, Barkin, Waller, Kashkari, and Mester in the lineup today. We will look to see if they reaffirm or pushes back against Chair Powell’s apparent ruling out of a 75bps hike. EUR will eye German ZEW prints closely, alongside ECB speak from Nagel. NOK, CZK and HUF eye CPI prints, while BRL will look forward to monetary policy minutes and retail sales. RON sees an interest rate decision, where Citi Economics forecasts a 50bps hike to 3.50%.

Source: Tickmill

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