Citi

Risk sentiment was still subdued in the Asian session with equities extending losses amid China’s regulatory crackdown on the education sector. Tight ranges prevailed ahead of FOMC with DXY hovering around 92.60. EM FX noted pockets of strength against the greenback. In particular, KRW outperformed on the back of improving relations between North and South Korea as both countries restored communication channels.

As August is approaching, our FX Quant team published the preliminary estimates of July month-end FX hedge rebalancing signals, which points to moderate USD selling with an average signal strength of 0.9 standard deviations. The signal to buy JPY vs USD is strongest due to weak performance of Japanese assets.

G10:SEK and NOK led the global outperformance. The inflows were indicative of broader risk sentiment rather than any developments on the local front. As a reference, FX Strategy prefers long NOKSEK on the grounds of a renewed uptick in energy markets, and the hawkish/dovish central bank divergence.

Equities began the new week with a positive start, and saw the S&P close 0.25% higher to 4222.00. Paralleling themes from late last week, price action appears to be a product of positioning and momentum dynamics. The upcoming sessions should prove interesting given more than 50% of the names within the S&P will be reporting earnings. In the Treasuries space, the belly and long end of the curve are offered. As a point reference, the 10y yield rose 1.3bps to 1.290%.

JP Morgan

EUR:

FX markets remain in a state of flux, the wave of risk reduction seen last week has slowed, and whilst sentiment has stabilised and certain currencies offer attractive entry points versus where they were trading just a short time ago, the market remains scarred and reluctant to act with much confidence for the time being. The ability for economies to remain open as the delta variant spreads is key for growth going forward, and so the whole world is watching the UK experiment where cases are coming down quickly from the peak to prove that vaccination is the only route out of this mess.

On the flipside, growth assumptions are being tempered alongside the current uncertainty, Chinese equities continue to get routed and globally vaccination program progress is rather uneven. All in all the current environment doesn’t exactly lend itself to holding a large amount of risk, and the reality is that is what we are seeing, or not seeing in this case, activity overall remains very light. Given the uncertainty, whilst US yields stabilise, I can’t see them headed too much higher in a hurry and so the bias still remains to look for usdjpy lower albeit with less confidence than last week.

Euro continues to oscillate around 1.18 with lack of momentum or theme at present, and I can’t really justify giving the single currency much more airtime at this juncture.