FOREX: Dollar Boosted Amid Renewed Pressure on Risk
- Reports on Iran’s intended use of newer missiles in the coming days and the FT report from Qatar suggesting Gulf energy exporters would shut down production within weeks have sparked the latest round of market volatility. Oil prices have spiked higher and have taken out yesterday’s highs, while equities are coming under renewed pressure.
- These dynamics have had less of an impact on the FX markets, but have placed the greenback on the front foot, with the DXY rising to a fresh session high, although we remain around 10/15 pips off yesterday’s best levels.
- Notable pull lower for EURUSD back under 1.16, with specific pressure on the likes of EURCAD and EURNOK notable. EURCHF also continues to trade with a bearish tilt this week, moving to within 25 pips of the 0.9025 cycle lows.
- Risk sensitive currencies have remained in focus, with AUD volatility a key characteristic across the G10 complex. AUDUSD has slipped back towards 0.70, but remains well off key 50-day EMA support which now intersects at 0.6934. NZDUSD weakness more notable, dropping 0.3% to 0.5880.
- USDJPY has been less volatile this week, however, the higher core yields and renewed greenback strength are edging spot closer to the 157.97 highs from Tuesday’s session. USDJPY will be carefully monitored into the US employment data today, and as we approach levels where prior rate checks from both the BOJ and Fed were reported to have taken place in January.
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EUROPEAN INFLATION: ECOICOP2 Data Sees 2025 Unprocessed Foods Revised Down
Note: Re-running a bullet first published yesterday afternoon
Eurostat has published historical data for the new ECOICOP 2 categorisation, which will form the Eurozone inflation basket from January 2026. The only major subcomponent groups that have seen material changes through 2025 relative to ECOICOP 1 are processed and unprocessed foods. Weight changes suggest this is due to some reclassifications at the individual component level. Core HICP is still seen averaging 2.42% through 2025, though the December 2025 reading was revised up three hundredths under ECOICOP 2 to 2.32% Y/Y (vs 2.29% under ECOICOP 1). See the table and charts below for more details.
- Unprocessed food inflation was 3.53% Y/Y in December 2025 under ECOICOP 2, versus 4.18% under ECOICOP 1. The 9.2-point weight increase for unprocessed food is accounted for by an equal decrease in processed foods.
- Services inflation was 3.42% Y/Y in December 2025 under ECOICOP 2, versus 3.38% under ECOICOP 1. Non-energy industrial goods inflation was 0.35% Y/Y in December under ECOICOP 2, versus 0.37% under ECOICOP 1.
- The 2.1-point weight increase for services is accounted for by an equal decrease in non-energy industrial goods.
- The main category addition in ECOICOP 2 is the inclusion of "games of chance" into the services basket. This data will be available in the January HICP final release on February 25. Barclays estimate a ~10bp drag on Y/Y services inflation through 2026 due to this inclusion.
- A reminder that the Eurozone-wide flash January HICP reading is due tomorrow morning.
FOREX: FX OPTION EXPIRY
Of note:
EURUSD 3.01bn at 1.1800/1.1850.
AUDUSD 1.96bn at 0.6950 (a little far).
EURUSD 2.3bn at 1.1800 (thu).
USDJPY 1.17bn at 156.00 (thu).
EURUSD 2.47bn at 1.1800 (fri).
EURUSD 2.94bn at 1.1900 (mon).
- EURUSD: 1.1800 (1.23bn), 1.1850 (1.78bn), 1.1900 (860mln).
- USDJPY: 156.25 (663mln), 156.45 (450mln).
- USDCAD: 1.3650 (375mln), 1.3700 (443mln).
- AUDUSD: 0.6950 (1.96bn), 0.7000 (388mln), 0.7100 (638mln).
- NZDUSD: 0.5975 (746mln).
