Carelessness restrains growth of US dollar and yen

Short description: The recent confidence of the US dollar and the yen was limited with a sharp jump in risk appetite.

At the end of last week, we saw the continuation of an impressive recovery in the asset markets from the lows of late December - and very opportunely, because the major US indices tested their 200-day moving averages. But the business day of the exchange on Friday turned out to be a hard refutation of this because the US stock market was back to catch up. Negotiations between the United States and China in the field of trade are not at all close to a breakthrough (and any probable deal seems to be largely taken into account), and the data were not influential enough to bring the situation back. One clearly positive factor for the stock was Köhre's statement from the ECB on Friday: he said that the ECB has a place to turn around with the next TLTRO long-term target lending operation.

We are desperately trying to understand how the current growth of the market, which almost unrealistically coincides with the steady demand for safe harbor assets, such as major EU bonds and US government treasury bonds, can last for a much longer period. Of course, the last surge of confidence on the background of a positive heading about a trade deal may lead to additional modest and one-time gain. However, as a result, against the backdrop of a global reduction in liquidity against the backdrop of a vigorous release of US government treasury bonds and a quantitative tightening by the Fed, it is simply impossible to maintain the simultaneous demand for risky assets and US government treasury bonds — either the bonds will wither and eventually become an obstacle to risk appetite or risk -appetite will last again. This week we are particularly focused on the minutes of the FOMC and ECB meetings, which will be held on Wednesday and Thursday, as well as closely following the preliminary index of business activity in the eurozone for February, which will be released on Thursday. In the meantime, the technical aspects and the herd sentiment on the stock market remain in the spotlight all week, and we especially note that either treasury bonds or stocks should soon collapse.

Trading interest

EUR / USD pair shorts: We still prefer the EUR / USD pair decline, possibly taking into account the tactically disappointing price risk maneuver with risk through put options - a 1.10 mark over four months shows us the other side of parliamentary elections weight.

AUD / USD shorts: Given the lack of dynamics, either patience is required for the appearance of a new sale wave or the expression of such a presentation in two-month or longer-term put options.

EUR / JPY shorts: options trading (put spreads for one month or longer if a price moves backward) due to local price action that turned out to be an incredibly unstable and limited price channel, and time when risk is weak appetite will return, difficult to know.

Chart: EUR / USD

The last attempt to break down through 1.1300 was delayed on Friday, but the downward movement remains in the spotlight given the weak prospects for the eurozone, because we expect closure below the low of the range at 1.1216 for signs of a downward trend. The risk of declining through options is still attractive because the estimated volatility is quite low compared to historical averages - at the moment it is just above 6.5% for three-month options.

Currency Overview G-10

USD - the risk is preserved without any noticeable increase in the yield on American securities; a favorable scenario for the "bears" for USD; However, it is hard to believe that such conditions will continue for a long time.

EUR - it seems that the euro will look bad in almost any scenario as the ECB returns to a policy of easing. The minutes of the ECB meeting can give more information, so the market will closely monitor the urgent release of the February eurozone PMI on Thursday. Additional risk is tariffs for European cars destined for export to America.

JPY - what does the yen trader do when he has bond offers in a safe haven and super high-risk appetite? Taking into account our expectations in the sense that the current market conditions cannot be maintained for a long time, we like the possibility of JPY growth through options.

GBP - the pound moves back to a higher level in the conditions of strengthening sentiment on the market that the worst option for the pound would be to postpone the Brexit term if Parliament next week decides to take control of Brexit during the vote on the amendment in order to avoid a zero deal.

CHF - the idea of another easing by the ECB keeps the EUR / CHF pair from moving up against the background of stronger risk appetite; the USD / CHF pair is moving away from the highs of the range.

AUD - the risk remains; energy market is determined by the parabolic buying up of shares of Chinese continental issuers; This provides the AUD, of course, stronger support. The AUD / USD pair tends to be lower, although the bears will be uncomfortable if the price maneuver ends at a level above 0.7200. Minutes of the RBA meeting will appear today by the end of the day; employment data will be released on Thursday.

CAD - oil and risk appetite support CAD, but the last “bullish” reversal in USD / CAD pair is still technically aimed at a higher level - the price maneuver below 1.3150 will be the beginning of a new phase.

NZD - Kiwi is overvalued; not sure which catalyst will spoil the whole picture; while we are observing whether the AUD / NZD pair will be able to pass the last levels of the long-term range towards parity.

SEK - the market was able to unravel Riksbank's intention to maintain a (relatively) aggressive position in its forecast last week, however, the strong appetite for risk and the ECB's soft policy are holding back the new highs in EUR / SEK.

NOK - the new big highs for crude oil, which keep the supply level below NOK and EUR / NOK, look not so impressive, while the rally continues back to 9.84.