january scrabble

In our FX review this week, we talk through the slightly tepid start to the year. Of note was the first NFP print from the US on Friday, and a slightly better risk backdrop helping risk currencies rally modestly.

A quiet week

As most participants entered the week back after the break, eyes were looking to see whether we would see any large directional moves start. This hasn’t been the case thus far, with most pairs respecting the recent ranges.

There are always exceptions to the rule, with a couple of interesting ones noted by the team. Firstly, USD/JPY managed to break above the 2021 highs as it took out 116 early in the week. Although most of the move retraced by the end of the week, we think that the pair looks good to continue a move higher towards the 120 mark over the course of 2022. If we see the US Fed more bullish in expectations on tightening policy, along with a lack of severity going forward with Omicron, then USD/JPY higher is a play we like.

The other move we noted was on EUR/CHF. The pair has been under pressure, mostly from a depreciating EUR. We think that the pair now looks oversold, and went long in our portfolio this week at 1.0350. the pair has bounced to close easily above 1.0400 on Friday, with further gains looking likely. This is due to it breaking out of the long-term downward channel from 2021. High Eurozone inflation figures on Friday also helped the pair.

Releases from the US won’t rock the boat

In terms of market moving events, it was always going to be quiet on the first week of the year. The releasing of US Fed minutes on Wednesday had a muted reaction in the FX space. Although the hawkishness did cause equities to move lower, we think that there wasn’t really anything particularly new in the minutes to warrant a major rethink of expectations.

The other point was the release of US employment figures on Friday afternoon. The NFP headline printed missed expectations, coming in at 199k vs 400k expected. However, average hourly earnings were up at 4.7% vs 4.2%, and the unemployment rate ticked lower. The USD didn’t really know where it wanted to head after the print, ultimately ending the day slightly weaker than where it began.

We don’t think that there is much to read into on the employment report, and don’t think it changes the path of the Fed (much like the minutes from Wednesday). We continue to like being long USD, such as versus JPY and CHF. However, we think that GBP and EUR could outperform USD respectively.

The week ahead

Eyes this week will remain on the US, with inflation data out on Wednesday and retail sales data on Friday. We’re also noting the GDP figures due out from the UK, also on Friday morning.

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