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Trader views - FX exposures catching the eye

Chris Weston
Head of Research
11 Mar 2022
The ECB meeting was clearly more hawkish than expected and we see 11bp of hikes priced into EU rates by the July ECB meeting.

So July is ‘live’ and if the data holds up, we’re looking at the ECB hiking by perhaps a token 10bp, which is certainly a cynical view for most traders I speak too.

The EUR was initially strong on the ECB’s statement that we’re likely to see accelerated policy normalisation and that the bank may hike “sometime” after QE wraps up. However, a lack of progress on ceasefires and limited inspiration from the meeting between Ukraine foreign minister Kuleba and Russian counterpart Lavrov, and that Russia will continue to push on with its invasion, saw the EUR reverse hard.

The commodity currencies are where the momentum flow is headed – EURAUD and EURNZD have reversed hard lower, with EURNZD just failing to pull off a bearish outside day.

After a bout of EUR short repositioning, from very oversold levels, we ask the question if this is the juncture to push back into short exposures in these crosses? Well, the ECB have made it some what more challenging as they are clearly concerned about the inflationary backdrop and with its statement caused German 10yr real bund yields to move up 18bp on the day, which is supportive of EURs.

Still, the EUR remains the default liquid proxy expression – outside of commodities – of Russia’s invasion of Ukraine and the implications for growth, stagflation, and risk.

NZDJPY daily chart


(Source: TradingView - Past performance is not indicative of future performance.)

There has been some real love for AUDJPY and NZDJPY – retail have amassed a concentrated short position in both pairs and countering the strength. However, for me, this is a solid momentum move, and mean reversion aside, if I am adopting a trend or momo strategy then I am trading these long side. NZDJPY is perhaps my pick (from a momentum angle) as it breaks the January swing high it just looks strong. 80.00 is clearly the target and we know how markets fare into round numbers, so trading the figure will be interesting – a break and its onwards and upwards.

USDJPY daily chart


(Source: TradingView - Past performance is not indicative of future performance.)

USDJPY is also on the radar, although I prefer it less than NZDJPY or AUDJPY, and we’re at some pretty big levels with price at the top of the range – hard to bet against this move though, especially with the FOMC next week.

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