To The Moon

1.0 USD

6.1.1 Synthesis

The US Dollar is rebounding broadly, shaking off recent weakness as a confluence of resilient economic data and central bank divergence re-energizes the greenback. Saxo highlights a "new and broad comeback" for the USD, driven by a risk-off rotation in equities (tech sell-off) and a hawkish repricing of Fed expectations. J.P. Morgan notes that despite the chaotic start to February for commodities, the divergence between rising metals and falling energy is a "healthy correction," not a turning point, suggesting underlying demand remains intact. Domestically, the labor market remains the key battleground; Nomura points out that while ADP private payrolls disappointed (22k vs 45k exp), initial jobless claims rose to 231k, partly due to winter storms, keeping the "soft landing" narrative alive but fragile. The Fed outlook is firming up; markets are pricing in ~48bps of cuts for 2026, but stronger-than-expected ISM manufacturing data and hawkish commentary (like Miran's call for aggressive easing being an outlier) have tempered bets on deep rate reductions (MUFG). Geopolitically, the focus remains on US-Iran relations; the confirmation of talks helped ease oil prices, removing a stagflationary risk premium that had previously weighed on sentiment. Structurally, J.P. Morgan emphasizes the dollar's role in energy trade is being reinforced by the US administration's tariff policies, which are redirecting Indian oil purchases away from Russia and towards US/Guyanese crude.

6.1.2 Key Themes

"The Tech Wreck" is the dominant equity theme; a 15% plunge in software stocks on AI fears has triggered a flight to safety, benefiting the liquid dollar. "Central Bank Divergence" is widening; while the Fed remains cautious, the ECB and BoE are signaling dovish pivots (BoE split vote, ECB low inflation), lifting the USD against European peers. "Energy Diplomacy" continues to reshape flows; the US is successfully using tariffs to re-route global oil trade, cementing the dollar's transactional dominance.

6.1.4 Bulleted Analysis

Key Market Drivers:

Equity Rotation: A sharp sell-off in US tech (Nasdaq -1.8%) and crypto (Bitcoin -2.2%) fueled safe-haven dollar demand (Bloomberg/Saxo).

Labor Signals: Jobless claims rose to 231k (storm-affected), but low ADP (22k) keeps the NFP outlook uncertain; markets await Friday's data (Nomura).

Fed Repricing: Markets are pricing fewer cuts (~48bps) after solid ISM data, supporting US yields and the dollar (MUFG).

China Trade: Goldman Sachs highlights that USD/CNY breaking below 7.00 is a key focus, with policy tolerance for yuan strength growing.

Supply/Demand Fundamentals:

Commodity Correlation: A divergence between energy (bearish) and metals (bullish) is emerging, driven by differing supply dynamics, which complicates the commodity currency trade (JPM).

Tech Earnings: Disappointing guidance from Alphabet (high capex) and Amazon (plunge) is driving capital out of high-beta growth and into the safety of the dollar (Saxo/Bloomberg).

2.0 G10 Currencies

6.1.1 Synthesis

The G10 space is defined by "Dovish Pivots" in Europe and "Political Risk" in Japan. The Bank of England (BoE) delivered a "dovish hold," keeping rates at 3.75% but with a 5-4 vote split that Goldman Sachs and MUFG agree opens the door wide for a March cut. This has weighed heavily on Sterling, as the market reprices for faster easing. The European Central Bank (ECB) also held rates, but President Lagarde's dismissal of low January inflation (1.7%) failed to convince markets that cuts aren't imminent, keeping the Euro under pressure near support. In Japan, the Yen continues to weaken (USD/JPY >157), driven by political uncertainty ahead of the February 8 election. MUFG and Goldman Sachs note that a potential LDP landslide victory is largely priced in, but the prospect of fiscal expansion (the "Takaichi trade") keeps the Yen on the back foot despite rising JGB yields. Meanwhile, the Australian Dollar and New Zealand Dollar are struggling as "risk-off" sentiment hits high-beta currencies, compounded by a slump in tech stocks.

6.1.2 Key Themes

"The Dovish Split" in the UK is the key G10 story; the 5-4 BoE vote signals growing internal pressure to cut, hurting GBP. "Fiscal Dominance" in Japan is overriding monetary signals; despite rising yields, the Yen falls as markets price in government spending. "Tech Contagion" is dragging down risk-sensitive currencies (AUD, NZD), as the AI trade unwind sours global risk appetite.

6.1.4 Bulleted Analysis

Key Market Drivers:

Sterling (GBP): Hit by a dovish BoE hold (5-4 vote); Nomura brings forward its cut forecast to March, seeing a terminal rate of 3.25%.

Euro (EUR): Trading heavy as January inflation fell to 1.7%; Nomura expects the ECB to hold at 2.00% but sees risks of undershooting.

Japanese Yen (JPY): Weakening (>157) on "Takaichi election" risks; MUFG notes fiscal expansion expectations are driving JPY selling despite yield support.

Norwegian Krone (NOK): Nomura expects Norges Bank to hold at 4.00% as inflation (3.1%) remains sticky, offering some yield support.

Supply/Demand Fundamentals:

Gas Supply: Goldman Sachs forecasts a massive global LNG supply wave starting in 2025/26, driving European gas prices (TTF) below €5/mmBtu by 2028, a long-term deflationary force for the Euro.

Iron Ore: Macquarie projects global steel demand to rise to 2,039 Mt by 2035, supporting long-term demand for Australian iron ore.

3.0 Asia Currencies

6.1.1 Synthesis

Asian currencies are showing divergence, with the Chinese Yuan (CNY) acting as a pillar of stability while regional peers wobble. Goldman Sachs remains bullish on the CNY, citing record trade surpluses ($1.4trn expected in 2026) and undervaluation. They identify MYR, KRW, THB, and TWD as the most sensitive to Yuan strength. Nomura has raised its conviction on a short USD/CNH trade, targeting 6.70, driven by lower daily fixings and official support. However, the broader region is facing headwinds; MUFG notes that weak January PMIs (China manufacturing fell to 49.3) and a "tech wobble" are weighing on sentiment. The South Korean Won (KRW) is caught in the crossfire; while sensitive to the Yuan's rise, it is hit by the global tech sell-off and surging put volumes. The Indonesian Rupiah (IDR) is finding support from better-than-expected Q4 GDP (5.4%), though Moody's outlook downgrade to "negative" highlights fiscal fragility.

6.1.2 Key Themes

"The Yuan Anchor" is solidifying; strong trade fundamentals and policy support are making the CNY a regional safe haven. "Tech Volatility" is the main risk; the sell-off in US and Asian tech stocks is hurting the Won and Taiwan Dollar. "Fiscal Fragility" is reappearing in SE Asia; Indonesia's rating outlook downgrade is a warning sign for high-yielders.

6.1.4 Bulleted Analysis

Key Market Drivers:

Chinese Yuan (CNY): GS and Nomura are bullish, targeting 6.70; supported by record trade surpluses and policy tolerance for strength.

South Korean Won (KRW): Struggling with tech equity outflows; KOSPI plunged 3.9% on momentum selling (GS).

Indonesian Rupiah (IDR): Supported by strong GDP (5.4%) but capped by Moody's outlook cut; Nomura still expects 50bp of rate cuts in 2026.

Singapore Dollar (SGD): J.P. Morgan notes its S$NEER model signals re-weighting, estimating the currency is +1.74% above the midpoint, implying limited upside.

Supply/Demand Fundamentals:

China Trade: A record $1.4trn trade surplus in 2026 provides a massive wall of capital inflow for the Yuan (GS).

PMI Weakness: China's official manufacturing PMI fell to 49.3 in Jan, signaling that the industrial recovery is uneven, a headwind for commodity exporters (MUFG).

4.0 Forecasts

USD/CNY (Nomura): High conviction call to short USD/CNH, targeting 6.70 by mid-April.

BoE Policy (Nomura): Expects the next cut in March, with a terminal rate of 3.25%, lower than previously forecast.

ECB Policy (Nomura): Forecasts the deposit rate to remain at 2.00% through 2027, with potential hikes in 2028 if inflation overshoots.

LNG Prices (GS): Bearish cycle expected for European gas (TTF) and Asian LNG (JKM), bottoming below $5/mmBtu in 2028/29 due to massive supply wave.

Global GDP (JPM): Maintains forecast for "above-potential" global growth of 2.5% in 1H 2026.

Gold (Saxo): Prices trading back above $5,000/oz; sees structural demand remaining firm despite technical headwinds.

US Equities (Bloomberg): Historical data suggests the S&P 500 could face drawdowns of 5-16% following a Fed leadership transition (Kevin Warsh expected in May).