GLOBAL POLITICAL RISK: Trump Again Threatens Iran With Infrastructure Strikes

The EUR/USD range overnight was 1.1530-1.1669, Asia is currently trading around 1.1600, -0.12%. The pair collapsed below 1.1700 and never looked back as longs capitulated printing well over 1% down at one point. The price action does not look great for the bulls and I suspect rallies will now be faded as the market eyes a move back toward the 1.1400-1.1500 area. On the day, the first sell-zone is back toward 1.1630-1.1660 and then the 1.1700-1.1750 area, looking for the move lower to now build for a potential test of the pivotal 1.1400-1.1500 support. CFTC Data shows asset managers are very long the EUR(See Fig.1 below) and this move could potentially get them to start paring back some of that exposure, a move back through 1.1400 would accelerate that process(See Fig.2 below).

• Bloomberg - “A prolonged war in the Mideast and a persistent fall in oil and gas supplies could cause a “substantial spike” in inflation and a sharp drop in output, European Central Bank Chief Economist Philip Lane told the Financial Times in an interview.”
• MNI INTERVIEW:TTF Over EUR100 In Prolonged Scenario-Gas Expert. European gas prices are likely to surge back above EUR100/MWh if disruption through the Strait of Hormuz proves prolonged, while competition for cargoes could become particularly intense in Asia, a gas expert at Columbia University’s Center on Global Energy Policy told MNI.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 1.1600(EU1.47b), 1.1750(EU963m). Upcoming Close Strikes : 1.1600(EU1.69b Mar 5), 1.1650(EU1.29b March 9) - BBG
• The EUR/USD Average True Range for the last 10 Trading days: 80 Points

Fig 1 : EUR CFTC Asset Manager/Institutional Positioning

Source: MNI - Market News/Bloomberg Finance L.P

Fig 1 : EUR/USD Spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P

The BBDXY range overnight was 1197.93-1211.25, Asia is currently trading around 1205,+0.15%. The BBDXY exploded through the 1195-1200 resistance and extended higher. The market has been very bearish the USD especially against EM so it is these and Oil affected currencies taking the brunt of the move for now. The market was not positioned for this, and moves like this do not just reverse so expect dips to be supported in the short-term. The market has very quickly moved back to test 1210-1215 where I suspect we should initially see some supply and do some work around here. Ultimately the big pivot lies above the 1230 area, any sustained break above here would be devastating for the shorts and would have ramifications for risk across the board should it occur. On the day, I suspect dips will will now be supported with the first buy-zone back toward 1200 and then 1190-1195. Buyers will be looking for a test of the 1215 area first and then ultimately have a look toward 1230.

• Bloomberg - “EM FX Retreat to Deepen as Dollar Squeeze Intensifies. EM FX is under acute pressure as the dollar’s resurgence cuts through high-beta currencies, exposing how crowded and vulnerable the trade had become.”                            
• Daily Chartbook on X: "The pain trade is likely higher for the USD due positioning becoming very short/underweight the USD" - @CameronDawson. See Graph below.
• The BBDXY Average True Range for the last 10 Trading days: 6.93 Points

Fig 1: DXY Vs USD Positioning

Source: MNI - Market News/Bloomberg Finance L.P/@CameronDawson

The BoJ offers to buy a total of Y710bn of JGBs from the market:

• Y100bn worth of JGBs with <1 Year until maturity
• Y270bn worth of JGBs with 1-3 Years until maturity
• Y245bn worth of JGBs with 3-5 Years until maturity
• Y95bn worth of JGBs with 10-25 Years until maturity