Citi

European Open

Geopolitics dominated trading once again. As markets digested the sanctions on Russia for Ukraine attacks, we saw DXY continue its trend downwards that was initially seen just before the European close. G10 markets were in the green, led by AUD, while EM markets saw INR and ZAR considerably higher as well. SEK was seen to be flat. Oil markets saw Brent prices dip below the $100 handle briefly, although it rallied back above that mark in Asia. Equities were down a touch in Asia after retracing through the NY session. UST saw front end yields a tad higher despite the Fed’s Waller stating a 50bps rate hike in March would be justified if economic data keeps coming in hot.

Elsewhere, we saw RBNZ’s Orr hinting that the impacts of the Russia-Ukraine conflict could increase the central bank’s tightening speed. JPY saw Tokyo CPI come in a touch above consensus, although it did not move markets.

Looking ahead, we will see several comments on the geopolitical front. NATO meets at 14:00 GMT, while ECB holds a presser at the same time. On the scheduled front, EUR will see French CPI at 07:45 GMT, and Eurozone Economic Confidence at 10:00 GMT. SEK will see Economic Tendency Survey at 08:00 GMT, while USD looks forward to PCE Core Deflator at 13:30 GMT. On the EM front BRL and RUB see inflation data. MXN will see GDP, economic activity and trade balance data.

CIBC

FX Flows

Concerns from Europe prevented SWIFT restrictions from being enacted, prompted risk-on in Asia. Then tweet that Fox News reporting Russia has activated strategic bombers saw risk sold. Confirmations that loud explosions heard in Kyiv, capital of Ukraine.

Top European Union leaders said Russian’s Putin must and will fail, as they agreed to fresh new sanctions. EU will freeze Russian assets in the bloc and halt its banks' access to European financial markets as part of what EU foreign policy chief Borrell described as "the harshest package of sanctions we have ever implemented".

There was little fixing demand for $YEN and €YEN, Twitter headline about Russian strategic bombers saw risk sold off. Fed Waller’s comment provided a very brief rally and then $YEN came off very quickly from 115.60 down to 115.35. More headlines about loud explosions in Kyiv put a lid on $YEN. Japanese retail traders have entered short $YEN and will be looking to buy them back near and below 115.00.

Surprised that EUR$ recovered back onto 1.12-handle, given that biggest threat to European economies is that the supply of energy and other commodities from Russia and Ukraine are disrupted. Russian and Ukraine headlines did no damage to the single currency. My trader Jon said market is short and we have witnessed profit taking last night and we might see shallow dips. Lets see what happens when our new Nintendo kid Putin wakes up.

New Zealand had a strong retail sales for Q4 but January’s trade deficit weakened and imports rose. Trade deficit widened to -NZ$1.082bn and December’s revised to -NZ$975mio from -NZ$477mio. RBNZ Governor Orr, on Bloomberg TV said economic implications of Ukraine events are all in the direction of supply being constrained, these large rises seen in commodity prices feeding through into general consumer price inflation. However, he acknowledged inflation surge in temporary. NZD$ peaked 0.6707, that was around the Tokyo fix and the pair slipped back towards 0.6688. Small short covering in AUDNZD as well. Top NZD$ option strikes due today, NZ$450mio at 0.6700 and NZ$520 at 0.6760.

AUD$ was choppy but unlike yesterday, it was much calmer. Russian strategic bombers headline sent AUD$ to the session’s low 0.7139. After that, it was tick by tick higher to 0.7179. No data for today, all eyes on RBA meeting next week Tuesday March 1. No change expected especially after this week’s wage price index for Q4. However, lets see what the RBA says about Russian/Ukraine. Come Wednesday March 2, Australia will publish the Q4 GDP growth, estimates up 3.0% from -1.9% quarterly and up 3.5% annually from +3.9%.