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FX Daily, February 12: Animal Spirits Start the Weekend Early

Swiss Franc

The Euro has risen by 0.06% to 1.0801

EUR/CHF and USD/CHF, February 12

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EUR/CHF and USD/CHF, February 12

Source: - Click to enlarge

FX Rates

Overview: Profit-taking weighs on equity markets, and the dollar is trading higher ahead of the weekend. Most Asia Pacific markets are still closed for the holiday, but Victoria’s snap lockdown dragged Australian shares lower. Japan and Indian markets were narrowly mixed, but the selling pressure is clearer in Europe, where the Dow Jones Stoxx 600 has had a heavier bias. US shares are also trading off, though coming into today, the S&P 500 was up about 0.75% for the week. US markets are closed on Monday. The dollar is snapping back after key levels held ($1.2150 in the euro and JPY104.40). The JP Morgan Emerging Market Currency Index is snapping a five-day advance but is likely to finish the week higher for only the second time this year. Gold continues to retreat after being turned by the 200-day moving average (~$1855.50) in the middle of the week. It is closer now to the low set at the start of the week, a little below $1808. Oil prices ended an eight-day rally yesterday and are seeing follow-through selling today. March WTI peaked on Wednesday shy of $59 and is pushing below $57.50 today. A break of $57 could spur a move toward $55 in the coming days.

FX Performance, February 12

FX Performance, February 12

- Click to enlarge

Asia Pacific

In an unscientific sampling of the covering of China’s decision to pull the BBC broadcasts,  most seem to see it as yet another example of censorship. Beijing appears to have stepped up its harassment of the foreign press, which includes arresting reporters and denying others credentials. Few understand it as retaliation for the UK’s decision to stop China’s state-owned broadcaster CGTN broadcasts over licensing issues. As CGTN sought to correct the situation (transfer license to another company, the UK rejected it due to missing information. The UK poked a bully and feigns surprise when the bully strikes back. Separately, it is revealing that Hong Kong has also denied the BBC access to its public network. It is another sign of the Sino-ificiation of Hong Kong.

As tipped, the head of Tokyo’s Olympic Committee, former Prime Minister Mori, has resigned over insulting comments about women that triggered an uproar in Japan, which itself is noteworthy. The immediate problem is not resolved, as a leading candidate, senior in age to Mori, and a former soccer star turned down the position. The pandemic is only one of a series of challenges for the Tokyo Olympics. There was a bribery scandal over Tokyo’s bid itself. There were accusations that the logo was copied and a reversal on a stadium’s design. There are safety concerns as some events are planned in the Fukushima prefecture, where the nuclear disaster happened. Public support for the Olympics has fallen below 20% in a recent poll. His handling of the Mori incident and the Olympics has not helped Prime Minister Suga, whose support is also falling. An election needs to be held by late October.

The dollar held support near JPY104.40 in the middle of the week and has jumped back to test the JPY105.20 area in late Asian turnover. There are $3.8 bln in options struck between JPY104.85 and JPY105.00 that are expiring today and another $470 mln at JPY105.35. We suspect the upside may have limited ahead of the weekend and peg support in the JPY104.70-JPY104.80 area. Although most of our levels worked out well this week, the Australian dollar overshot a little, poking briefly through the $0.7770-area yesterday. It has come back lower today, and a break of $0.7700 lend credence to the idea that the bounce was part of the “correction within a correction) and lower levels should be expected. The dollar is enjoying a firm tone against the offshore yuan, but it is off about 0.4% on the week.  


The UK economy grew by 1.2% in December, which was a bit better than expected, and follows a revised 2.3% contraction in November (from -2.6%). It translated into a 1.0% expansion in Q420, twice the median forecast in Bloomberg’s survey. Government spending provided the important impetus, jumping 6.4%. In December, industrial output (0.2%), manufacturing (0.3%), and construction (-2.9%) were weaker than anticipated. The trade deficit was larger (-GBP6.2 bln). Services were a bright spot (1.7%). Although the BOE’s Haldane was nearly euphoric, talking about how the economy will snap back like a spring and inflation will return to target next year, the key remains the evolution of the virus. There is talk of extended curb through the summer.

Italy’s benchmark 10-year bond yield has fallen to new record lows today and is approaching 40 bp. While ECB buying is, of course, a factor, recent flow data suggest it is not the only one as Japanese investors have also been keen. With yesterday’s vote by the Five Star Movement, almost 60% supported a Draghi government, the stage is set. Draghi did not need the M5S as a majority had already been secured, but it is helpful, and even the founder, Grillo, endorsed Draghi. The promise to set up an ecological transition ministry helped galvanize support. The next step is for Draghi to announce his cabinet and next week submit to a vote of confidence in both chambers.

The euro stopped 1/100 of a cent from our $1.2150 target yesterday and has backed off today. It has tested the $1.2100 area, which houses the 20-day moving average. A break of it could send it down another quarter of a cent or so today. The $1.2025-$1.2050 area may be the key early next week. Sterling held about $1.38 for the past two sessions, but not today. The expiring option for about GBP360 mln struck there is now out of the money after slipping to almost $1.3775. Support is seen closer to $1.3750.


There is a light economic calendar for North America ahead of the weekend. Of note, both Yellen and Powell will attend the first G7 virtual meeting of the year. There may be some headline risk around it. This week the market easily absorbed the US quarterly refunding, where it sold about $125 bln of coupons. The 10-year yield rose almost 10 bp, illustrative of the concession built, and this week it is off a basis point. The US 2-year yield slipped below 10 bp yesterday for the first time. As the Treasury pays down a significant amount of T-bills and reduces its cash balance, the short-end of the curve is very soft. There is still fear that some bills could fall to zero or below, and it has spurred a debate whether the Fed will tweak some of its tools, like interest on reserves (required and excess) or reverse repo rates.

Mexico delivered the widely expected 25 bp rate cut yesterday, and several factors will encourage the market to look for more cuts. First, the decision was unanimous.  Second, there was no mention of a floor for rates or talk of limited scope for additional moves. Banixco sees core inflation back at 3% in Q3 and warns of base effect’s distortions that could lift reading in Q2 only to see them unwind in Q3. The central bank meets next on March 25. Speculation will mount for another cut then.

For the past two sessions, the US dollar fell against the Canadian dollar initially but recovered to close near session highs, as if the market was rejecting those lower levels. The greenback has bounced from around CAD1.2660 yesterday to about CAD1.2755 today, where it settled last week. Chart resistance is seen near CAD1.2775-CAD1.2800. Softer equities and a pullback in oil may weigh on the Canadian dollar.  The greenback saw almost MXN19.90 yesterday but is snapping back today and has already risen above Thursday’s high (~MXN20.0575). There may be potential for MXN20.15 today. It finished last week around MXN20.0875.

Graphs and additional information on Swiss Franc by the snbchf team.

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Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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