Citi

European Open

A swing in risk sentiment marked the Tuesday morning. USD saw a downtick, dropping 0.16% near to the Europe open. The slightly risk off sentiment saw UST in the red and JPY up by 0.41%. There were reports today morning that Fed's Brainard interviewed with President Biden for the top job at the Fed, casting some doubt on Powell's re-nomination. We note that Brainard is seen to be more dovish than Powell. THB continued its gain (0.7%), backed by strong fundamentals over reopening as well as foreign iflows, while KRW gained 0.45% even amidst selling pressure from KOSPI which was in the red.

Looking ahead, we look forward to more speakers, with Fed Chair Powell (neutral/dove) to Speak at Joint Fed, ECB and BoC Diversity Conference at 14:00 GMT, followed by Fed’s Daly (neutral/dove) at 16:35 GMT, and Fed’s Kashkari (dove). We look forward to Powell the most for further insights. On the BoE front, we see Broadbent (neutral) at 15:30 GMT, followed by BoE's Bailey and ECB's Schnabel (neutral) at 16:00 GMT. On the data front, the US sees NFIB Small Business Optimism at 11:00 GMT, while HUF (08:00 GMT) and MXN (12:00 GMT) see CPI prints. RON sees an interest rate decision (time unknown) where Citi Economics forecasts a 25bps hike to 1.75%.

An eye on the US

USD saw a downtick during the Asian morning. DXY held steady for most of the Asian session, but dropped by 0.16% near to the Europe open, while treasuries saw yields decline slightly across the board. This was mostly a result of a swing in risk appetite. There were reports that Fed's Brainard interviewed with President Biden for the top job at the Fed, casting some doubt on Powell's re-nomination. We note that Brainard is seen to be more dovish than Powell.

JP Morgan

EUR: Position reduction still seems to be the theme particularly in rates markets, with some spill over into currencies finally overnight as dollar longs are tested as more reports and speculation about Brainard taking over as Fed chair circle. On the margin her views have been a touch more dovish overall historically, however beyond the kneejerk am not sure you can extrapolate too much into future policy as yet. Having said that, the lack of action since Fridays labour market report prompted me to abandon the euro bearish view yesterday which I have been somewhat reluctant to get too involved in anyway given the glacial pace of the move lower, but I do persist with a core long in usdjpy based upon the slightly more positive growth data we have seen in the last couple of weeks, beyond position adjustment I can’t see why long end yields should collapse from here, 112.25/50 area should be strong support now.

Elsewhere continue to run with a bias for usdcad to turn lower, a steadily hawkish BOC in the sea of central bank communication madness should benefit the currency over time especially with the US data improvement recently, and also continue to look for eurczk to continue to grind lower.

As above, I am neutral in the euro, the price action is overall mind numbing, and whilst people are short and progress to the downside is limited the risk of an adjustment higher remains, albeit I don’t particularly expect it to extend too far either, however I would expect further reduction if we reclaim 1.1620, the highs on the night of the Fed last week.