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AUD USD - FUNDAMENTAL DRIVERS AUD FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy At their March meeting, the bank didn’t do much to surprise markets and stuck to a similar script compared to the previous meeting, with the exception of adding the Russia/Ukraine war as a major new source of uncertainty. While Unemployment is at 4.2% and expected to be below 4% throughout 2023, and with Inflation above the middle of the target range and expected to rise to 3.25 this year and stay at 2.75% throughout 2023, the continues dovish façade is getting a little embarrassing for the bank. Even though wage growth failed to surprise higher, consensus still expects it to reach 3% in Q2 and well above 3% in Q3, and once the 3% level is reached the RBA would have complete ran out of reasons to stay dovish. It’s clear that markets are looking straight through this though as STIR markets, bond yields and the AUD failed to see any real downside after the meeting and continued higher after a very brief and small dip lower. For now, the bank stays dovish, but the longer they stay in denial the longer the chances of a more aggressive hawkish pivot later. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 4 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see a solid post-covid recovery China – With the PBoC stepping up stimulus & expectations of further fiscal support expected in 1H22, the projected recovery in China bodes well for Australia as China makes up close to 40% of Australian exports. However, the AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar. Commodities – Iron Ore (24% of exports) and Coal (18% of exports) keep grinding higher for various reasons, one being China’s expected recovery and the other the energy and inflation concerns given the geopolitical risks, and as long as these commodities are supported, they should remain supported. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Remember that the updated COT data we received on Friday only included price action until Tuesday of last week, which means the meteoric rip from the latter part of last week is not included in the data. Even though positioning is still very stretched and there is still room to unwind, we would expect quite a sizeable reduction in the current net-shorts with next week’s data as bag holders is no doubt starting to get worried. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. The USD remains a net-long across large specs, leveraged funds and asset managers, but price action has been looking stretched. However, given growing stagflation and geopolitical risks it means stretched positioning might not be as important right now, but worth keeping in mind of course.

NZD USD - FUNDAMENTAL DRIVERS NZD FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy More hawkish than expected can sum up the February RBNZ policy decision. Even though the bank delivered a 25bsp hike and did not surprise with a 50bsp hike (probability was at 30% before the meeting), they managed to surprise markets with their upgraded projections and plans for QT. Markets were anticipating the bank to take a passive QT route by ceasing reinvestments, but instead announced that they will start to sell their bond holdings from July. Furthermore, markets were looking for the bank to upgrade their OCR terminal rate projection to between 2.8%-3.0% from 2.6% but instead increased it 3.4%, essentially adding another 3 hikes to their forecasts for the current hiking cycle. With the latest decision the RBNZ has once again showed that it’s the most hawkish central bank among the majors. However, price action will tell whether it’s been enough to finally see the markets giving the NZD the upside it deserves. 2. Economic and health developments The economic outlook looks solid for New Zealand, with growth expected to accelerate, inflation expected to stay high, home prices still close to 30%, commodity prices doing well, and now also a ratified trade deal with China that is expected to open up more Chinese markets for New Zealand goods. 3. Global Risk Outlook As a high-beta currency, the NZD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the NZD. 4. CFTC Analysis Positioning changes has been very limited for the NZD in the past few weeks and with the flush out of net-longs among Leveraged Funds in Dec we can see that positioning is close to neutral for large specs, asset managers and leveraged funds. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. The USD remains a net-long across large specs, leveraged funds and asset managers, but price action has been looking stretched. However, given growing stagflation and geopolitical risks it means stretched positioning might not be as important right now, but worth keeping in mind of course.

GBP USD - FUNDAMENTAL DRIVERS GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April (prev. 6.0%) & 5.21% in 1-year (prev. 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation. Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Even though recent data started to look more constructive for Sterling from a sentiment point of view, the CFTC data remains a mix bag with no clear consensus view, and nothing really stretched by any means. Interestingly, it seems like Leveraged Funds chose the worse time to move GBP into the biggest net long as the currency took a really big knock last week alongside the EUR. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. The USD remains a net-long across large specs, leveraged funds and asset managers, but price action has been looking stretched. However, given growing stagflation and geopolitical risks it means stretched positioning might not be as important right now, but worth keeping in mind of course.

EUR USD - FUNDAMENTAL DRIVERS EUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics Even though the EUR, through Western sanctions, have dodged potential weakness from the CBR selling the EUR to prop up the RUB, the single currency was not immune for long. It held up okay on Monday and Tuesday, but as proximity risk to the war and economic risk as a result of sanctions grew, the risk premium ballooned, sending EUR risk reversals tanking lower while implied volatility jolted higher. With very big moves lower already, chasing the lows aren’t very attractive, but picking bottoms is equally dangerous. 4. CFTC Analysis Last week we looked at the big amount of bullish sentiment built up for the EUR over the past 3 months, and we think a lot of those new bulls were caught with their pants down the past week, forcing huge capitulations as the EUR went into free fall across the board. Keep in mind the release date of the COT data means this week’s release won’t show the extent of unwinding until next week, so flying blind is an understatement here. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility. But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. The USD remains a net-long across large specs, leveraged funds and asset managers, but price action has been looking stretched. However, given growing stagflation and geopolitical risks it means stretched positioning might not be as important right now, but worth keeping in mind of course.

Today’s Notable Sentiment Shifts EUR – The euro spiked higher on Thursday following the ECB’s decision to phase out its APP by Q3, pushing EURUSD briefly above the 1.11 handle. However, gains were short-lived, with focus quickly turning back to the Ukraine/Russia war and its economic consequences for the Eurozone. BK Asset Management argues the diverging economic outlooks between Europe and the US is causing the market to “price in a rate differential between the dollar and the euro.”

Today’s Notable Sentiment Shifts EUR – The euro gained more than 1.5% against the dollar on Wednesday as risk appetite returned to financial markets and energy and commodity prices eased from recent peaks that resulted from Russia’s invasion of Ukraine and the West’s retaliatory sanctions. TD Securities noted that the move was driven in part by recent reports that the EUR was discussing a joint bond issuance to finance energy and defence spending. Concluded that “looking at the options market, the signal there has been a reduction in downside protection for the euro, so that could be signaling that the market thinks we may be moving on from the very acute phase of the shock.”

DXY - FUNDAMENTAL DRIVERS USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility. But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. The USD remains a net-long across large specs, leveraged funds and asset managers, but price action has been looking stretched. However, given growing stagflation and geopolitical risks it means stretched positioning might not be as important right now, but worth keeping in mind of course. 4. The Week Ahead This week’s data calendar for the US holds only 2 important data points with US CPI on Wednesday and UoM Consumer Sentiment on Frida. Markets are expecting headline CPI to reach 7.9% and Core CPI expected to reach 6.4% (both would be the highest going back to the early 80’s). The print will of course be important from a macro perspective, but it probably won’t be enough to chance the Fed’s mind about tightening. Fed chair Powell was quite clear this past week that we can expect a 25bsp hike at the March meeting, and even though he didn’t reject the idea of 50bsp for later meetings (depending on the inflation situation), it’s not their base case right now. Thus, CPI could spur some short-term volatility but probably nothing more. Consumer sentiment could also have an impact with markets expecting another drop where last time already saw sentiment deteriorate to GFC levels. Another bigger than expected miss might not change the Fed’s mind but could add to stagflation fears and create some short-term volatility. The USD has been looking stretched after the recent price action, and usually some mean reversion would not be out of the question. However, when you have both geopolitical risks of the magnitude we’ve recently seen, accompanied with growing stagflation risks, positioning might take a back seat. Thus, this week we’ll need to keep the geopolitical situation in mind when looking at the USD. With the downside seen in the EUR last week, any good news on the war could see a very drastic upside reaction in the EURAUD, EURNZD and EURUSD which were some of the biggest movers last week. At these levels though the attractiveness of chasing the USD higher is rather slim at the moment.

EUR CAD - FUNDAMENTAL DRIVERS EUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics Even though the EUR, through Western sanctions, have dodged potential weakness from the CBR selling the EUR to prop up the RUB, the single currency was not immune for long. It held up okay on Monday and Tuesday, but as proximity risk to the war and economic risk as a result of sanctions grew, the risk premium ballooned, sending EUR risk reversals tanking lower while implied volatility jolted higher. With very big moves lower already, chasing the lows aren’t very attractive, but picking bottoms is equally dangerous. 4. CFTC Analysis Last week we looked at the big amount of bullish sentiment built up for the EUR over the past 3 months, and we think a lot of those new bulls were caught with their pants down the past week, forcing huge capitulations as the EUR went into free fall across the board. Keep in mind the release date of the COT data means this week’s release won’t show the extent of unwinding until next week, so flying blind is an understatement here. 5. The Week Ahead The ECB will be the main scheduled risk event for the EUR this week, alongside further unscheduled war news of course. For the ECB, there is not a lot of conviction that the bank will announce a policy recalibration at this week’s meeting. Even though the latest HICP saw yet another bigger-than-expected jolt higher, the geopolitical situation adds a lot of risk. With three separate ECB members (Stournaras, Centeno, Rehn) specifically mentioning stagflation as a growing risk, that shows us that the focus has shifted for some. However, the bank will have a really tough time this week as they will need to juggle between trying to downplay tightening financial conditions in the midst of a potentially big hit to the economy, while also trying to convince markets that they will sort out the current inflation challenge (with ECB’s Lane saying staff economic projections were revised in order to take the Russian invasion into account). On the Russia/Ukraine side, the market priced in a ton of risk premium last week, with EUR risk reversals falling off a cliff and reaching levels last seen during the Covid crash in 2020 and the EU sovereign debt crisis in 2012. With so much bad news priced in the EUR might struggle to continue its move lower without really substantial bad news, but at the same time with the big risk premium any good news could see exacerbated upside. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC did not surprise at their March meeting by hiking rates to 0.50% from 0.25% and continuing the reinvestment phase regarding asset purchases. The bank noted that the Russia/Ukraine war was a new major uncertainty for the economy and that as a result inflation is now expected to be higher in the near-term. They were optimistic about the growth outlook though and reiterated that it expects further interest rate rises will be needed. On the QT side, Gov Macklem noted that around 40% of the bank's bond holdings were due to mature within two years, and suggested that balance sheet could shrink quickly, and also added that they will discuss ending the reinvestment phase and starting QT at the April meeting. The Governor also said he didn’t rule out the potential for 50bsp rate rises as oil is putting upside pressure on oil, noting that oil prices around $110 per barrel could add another percentage point to inflation. With markets implying close to another 5 hikes this year, we remain cautious on the currency as a slowing US and Canadian economy means the bank should struggle to maintain it’s current hawkish path in the weeks and months ahead. 2. Intermarket Analysis Considerations Oil’s massive post-covid recovery has been impressive, driven by various factors such as supply & demand (OPEC’s production cuts), strong global demand recovery, and of course ‘higher for longer’ than expected inflation. The geopolitical crisis the world is facing right now have opened up a big push higher in WTI, trading at levels last seen since 2008 last week. With oil prices at these levels the risk to demand destruction and stagflation is higher than ever and means we remain cautious oil in the med-term. Reason for that view is: Synchronised policy tightening from DM central banks targeting demand, slowing growth and inflation, a consensus that is very long oil (growing calls for $100 WTI), very steep backwardation futures curve which usually sees negative forward returns, heightened implied volatility. However, recent geopolitical risks have been a key focus point for oil and means escalation and de-escalation will be important to watch. 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis We think the recent price action and positioning data has seen the CAD take a very similar path compared to April and Oct 2021 where markets were way too aggressive and optimistic to price in upside for the CAD, only to then see majority of it unwind. However, oil prices remain in focus as a key intermarket driver. 5. The Week Ahead On the data side this week we have employment data released on Friday where markets are expecting a strong recovery of 160K from last months dismal -200K print, and Unemployment is expected to drift to 6.2% from the prior jump to 6.5%. The data will as always be important from a macro perspective, but it whether it’s a big miss or beat would probably not be enough to change the BoC’s mind about their policy path just yet. That means, it could create some short-term volatility, but probably not any sustainable shifts in the big picture. The other driver to watch for the CAD is the oil market, where continued geopolitical risks have seen some jarring spikes in oil prices, reaching levels last seen during the Global Financial Crisis. As a Petro-currency this is usually expected to be very supportive for the CAD, but the correlation between WTI and the CAD has been rather hit and miss over the past few weeks and months. However, it’s quite normal for correlations to strengthen and weaken over time, and just because oil has not been a big influence for the CAD’s recent price action, it doesn’t mean it can’t come back into focus given recent energy market developments.

EUR GBP - FUNDAMENTAL DRIVERS EUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics Even though the EUR, through Western sanctions, have dodged potential weakness from the CBR selling the EUR to prop up the RUB, the single currency was not immune for long. It held up okay on Monday and Tuesday, but as proximity risk to the war and economic risk as a result of sanctions grew, the risk premium ballooned, sending EUR risk reversals tanking lower while implied volatility jolted higher. With very big moves lower already, chasing the lows aren’t very attractive, but picking bottoms is equally dangerous. 4. CFTC Analysis Last week we looked at the big amount of bullish sentiment built up for the EUR over the past 3 months, and we think a lot of those new bulls were caught with their pants down the past week, forcing huge capitulations as the EUR went into free fall across the board. Keep in mind the release date of the COT data means this week’s release won’t show the extent of unwinding until next week, so flying blind is an understatement here. 5. The Week Ahead The ECB will be the main scheduled risk event for the EUR this week, alongside further unscheduled war news of course. For the ECB, there is not a lot of conviction that the bank will announce a policy recalibration at this week’s meeting. Even though the latest HICP saw yet another bigger-than-expected jolt higher, the geopolitical situation adds a lot of risk. With three separate ECB members (Stournaras, Centeno, Rehn) specifically mentioning stagflation as a growing risk, that shows us that the focus has shifted for some. However, the bank will have a really tough time this week as they will need to juggle between trying to downplay tightening financial conditions in the midst of a potentially big hit to the economy, while also trying to convince markets that they will sort out the current inflation challenge (with ECB’s Lane saying staff economic projections were revised in order to take the Russian invasion into account). On the Russia/Ukraine side, the market priced in a ton of risk premium last week, with EUR risk reversals falling off a cliff and reaching levels last seen during the Covid crash in 2020 and the EU sovereign debt crisis in 2012. With so much bad news priced in the EUR might struggle to continue its move lower without really substantial bad news, but at the same time with the big risk premium any good news could see exacerbated upside. GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April (prev. 6.0%) & 5.21% in 1-year (prev. 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation. Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Even though recent data started to look more constructive for Sterling from a sentiment point of view, the CFTC data remains a mix bag with no clear consensus view, and nothing really stretched by any means. Interestingly, it seems like Leveraged Funds chose the worse time to move GBP into the biggest net long as the currency took a really big knock last week alongside the EUR. 5. The Week Ahead It’s a very light week on the data front for Sterling with no major data points to watch out for. That means that the biggest focus for the Pound will fall to the ongoing geopolitical uncertainty. Given their proximity to the actual war front, as well as the direct impact of sanctions on their economies, the EUR and GBP saw some very sizeable downside last week. Comparing implied volatility across the G10, the moves higher in the EUR and GBP were worrisome spikes as risk premiums continued to build. This has added another layer of risk on to Sterling, with the BoE’s recent dovish tone already causing some downside risk before the geopolitical risks came into focus. As always, we need to keep price action in mind, and with the amount of downside priced into currencies like the GBP and EUR in such a short space of time, we do want to be mindful of some mean reversion at some stage.

AUD CAD - FUNDAMENTAL DRIVERS AUD FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy At their Feb meeting the RBA delivered on expectations by announcing an end to QE purchases, and also upgrading inflation and employment forecasts. These were seen as hawkish developments, but the bank tried as hard as possible to still keep up a dovish impression by saying the ceasing of QE does not imply near-term rate increases and stating that it’s still too early to conclude that inflation is sustainably within the target band despite recent CPI prints. The bank maintained their view that the cash rate will not increase until inflation is sustainably within the 2%-3% target band. Now, call me crazy, but on that front, the bank’s projections forecast inflation to reach close to 3.25% this year and then see it returning to 2.75% during 2023, which surely implied ‘sustainable’ inflation. Comments from Gov Lowe the following day were slightly less dovish though by acknowledging that achievement of their inflation and employment goals are within reach. He also noted that even though it remains to be seen if rates will increase this year, there are clearly scenarios where the bank would be hiking this year (which was a step away from the tone and language used in the statement) but added that it’s still plausible that a first-rate hike is a year or more away. The February decision and tone could be summed up as an incremental step away from ultra-easy policy and means we have changed our Dovish stance for the bank to neutral. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 4 drivers we’re watching for the med-term outlook: Recovery – unlike other nations where growth & inflation is expected to slow, Australia is expected to see a solid post-covid recovery China – With the PBoC stepping up stimulus & expectations of further fiscal support expected in 1H22, the projected recovery in China bodes well for Australia as China makes up close to 40% of Australian exports. However, the AUKUS defence pact could see retaliation against Aussie goods and is worth keeping on the radar. Commodities – Iron Ore (24% of exports) and Coal (18% of exports) keep grinding higher and if China’s recovery starts to build some momentum, they should remain supported. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Stretched positioning are usually a contrarian indicator and warning of potential squeezes. Thus, right now the AUD might be more sensitive to positive data or developments compared to negative ones as a lot of bad news has been priced in. 5. The Week Ahead Right now, we think the Australian economy is well-placed compared to its peers as its economic is expected to recover alongside that of China (after going through a slowdown) just as other major economies are expected to slow down. Even though markets have been pricing in a steep rate path for the RBA, we still think the large netshort positioning means lots of catch-up potential for the AUD when the RBA eventually turns hawkish. Even though last week’s wage index printed slightly below target, market consensus still looks for 3% in Q2 and 3.5% by Q3, which means as long as inflation stays high (no expectation for that to slow as yet) and the labour market remains tight and growth keeps on recovering, the RBA should be next in line to tilt more hawkish, with a hike in rates very likely by the middle of the year. Despite the geopolitical risks these past few weeks, the AUD has remained very resilient, a good sign for our med-term upside expectations. This week we have the RBA, and even though they are not expected to shift their tone drastically just yet, the market has largely ignored the dovish language recently, and we would expect them to do so in the week ahead as well. For the week ahead, we have preliminarily shifted our currency bias for the AUD from neutral to bullish, but keep in mind that the AUD has seen a few weeks of solid gains recently, which means seeing some reprieve lower should not be much of a surprise. However, we are looking for any decent moves lower in the AUD as opportunities to get back in on the long side. However, given the weekend’s news of additional sanctions, this upcoming week is set to be very risk sentiment driven so keep that in mind as well. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Despite STIR markets pricing in close to an 80% chance of a 25bsp hike, the BoC chose to leave rates unchanged at their Jan meeting. However, the bank removed its extraordinary forward guidance and said they now think the economic slack has been absorbed (previously expected to occur somewhere in the middle quarters of 2022). The bank also explained that they expect rates will need to rise based on the progress of inflation, and Gov Macklem explained their only reason for not hiking was uncertainty surrounding Omicron. The statement gave a clear signal that a March hike is on the table. Furthermore, on the balance sheet the bank delivered on expectations by noting they will likely exit the reinvestment phase as rates begin to rise. Even though 2022 inflation projections were upgraded, the bank also downgraded growth forecasts (which in our view remains a key reason why current STIR market expectations are not realistic). Thus, the meeting had both dovish and hawkish elements to it, and thus means we are still happy to hold to a neutral bias for the CAD. 2. Intermarket Analysis Considerations Oil’s massive post-covid recovery has been impressive, driven by various factors such as supply & demand (OPEC’s production cuts), strong global demand recovery, and of course ‘higher for longer’ than expected inflation. Even though Oil has traded to new 7-year highs, we think the current Russia/Ukraine tensions and recent tight capacity concerns are the biggest contributors to the upside. We maintain a view that thinks there is greater risks of med-term downside due to: Synchronised policy tightening from DM central banks targeting demand, slowing growth and inflation, lower inflation expectations (due to the Fed), a consensus that is very long oil (growing calls for $100 WTI), a very steep backwardation futures curve which usually sees negative forward returns, heightened implied volatility. However, recent geopolitical risks have been a key focus point for oil and means escalation and de-escalation will be important to watch. 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis We think the recent price action and positioning data has seen the CAD take a very similar path compared to April and Oct 2021 where markets were way too aggressive and optimistic to price in upside for the CAD, only to then see majority of it unwind. However, with almost 3 weeks of straight downside we do want to be mindful of the possibility of some short-term upside, especially if the weekend sanction news sees further Oil upside. 5. The Week Ahead Focus for the CAD is threefold this week with risk sentiment, Oil and the BoC in focus. On risk sentiment and Oil, it’s a mixed bag for the CAD. Even though the oil market’s initial reactions to escalation and de-escalation were as expected, we did see the impact fading this week as some focus returned to the possibility of an Iran nuclear agreement came back on scene. With risk sentiment, any further escalation is expected to be negative for risk sentiment (negative for the CAD) and any de-escalation is expected to be positive for risk sentiment (positive for the CAD). Just keep in mind that even though oil prices started to react less to geopolitical risks this past week doesn’t guarantee that it will continue to do so in the week ahead. However, if oil prices do react stronger to geopolitical risks that will make the CAD a tricky one to trade as oil and risk sentiment would move inverse to each other and mean the CAD could have both a push and pull effect on the CAD. For the BoC, the market continues to price in a 100% probability of a 25bsp hike this upcoming week. We think there is a real risk that the decision is poised to be a ‘dovish’ hike, as the bank will want to keep the hiking going due to inflation but would want to leave some optionality by recognizing the potential damage the recent border protests could pose for growth and consumer sentiment in general. There is also the Russia/Ukraine war which complicates things for central banks right now, and given that uncertainty it would make sense for the BoC to walk back some of the aggressive pricing embedded into STIR markets.

EUR USD - FUNDAMENTAL DRIVERS EUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics The Russian invasion of Ukraine opens up a lot of uncertainty for the EUR. On one hand, the decision to ban certain Russian banks from SWIFT was expected to impact the EU negatively, but the decision to freeze CBR assets means the expected FX reserve sales of Euros (to try and prop up the RUB) might not happen. The other consideration is energy, with the SWIFT bans, any restrictions on energy sales from Russia would put pressure on already high inflation and increases stagflation risks of higher inflation but falling growth. That does cloud the med-term outlook for the EUR and means we are happy to hold onto a neutral bias for now. 4. CFTC Analysis Participants are building into EUR longs. Large specs have seen 9/10 week of net increases in longs, asset managers have seen 10/12 weeks of net increase in longs and leveraged funds have reduced net shorts for 11 weeks in a row now. It’s safe to say that the sentiment for the EUR has improved given positioning data. However, the risk here is also that a lot of new bullish sentiment could have built up at the wrong time. 5. The Week Ahead It’ll be a difficult juggle for the EUR next week amid very important econ data and geopolitics. Monday’s open can be messy, as further sanctions on Russia over the weekend is a negative for the EUR but freezing assets from the CBR could mean less chance of dumping EUR reserves to prop up the RUB. Also keep USD liquidity squeezes in mind as a big drain on USD liquidity could see the Fed opening up swaps and could end up pressuring the USD & supporting the EUR. On the data side there will be a lot of focus on Wednesday’s HICP print. The upward surprise in Jan’s HICP was enough to see unanimous concern among the GC according to Pres Lagarde. This past week, ECB’s Lane said the Ukraine crisis presents a big risk to much higher inflation for 2022, and that comes amid already much steeper upwards projections to staff forecasts. Thus, an upward surprise to this week’s data would put more pressure on the ECB to go ahead with a possible policy recalibration at the upcoming March meeting and should be a positive input for the EUR (despite the geopolitical risks). Market implied rate expectations have dropped to just above 30bsp, which means an upside surprise in price pressures can spark some higher repricing. With so many negatives priced into the EUR over the past few months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. Even though the USD remains a net-long across large specs, leveraged funds and asset managers, it seems the EUR’s attractiveness has continued to grow and could mean more downside for the USD unless the Fed surprises even more hawkish, and the ECB stays dovish. Also keep safe haven flows in mind as the current geopolitical tensions does add another layer of complexity to the USD. 4. The Week Ahead Busy week ahead on the data front, with the ISM Manufacturing and Services, ADP national employment and of course the big one with NFP coming up on Friday. The recovery in recent data (Retail Sales & Industrial Prod) suggests a very similar covid bounce like we saw with Delta, and that point to a possible similar bounce in the ISM data this week. However, it’s important to keep in mind the growth trend is still tilted lower for the rest of 2022. Moving on to the jobs data, even though the headline ADP and NFP prints will as always garner attention, the bigger focus for the jobs data will arguably fall to the inflation prints like the Average Hourly earnings . The question is whether the data could beat enough to see markets pricing back a 50bsp hike, as probabilities for a 50bsp hike was sitting at just 26% on Friday. For now, it seems unlikely that a bigger than expected beat would seal the deal for a 50bsp move, especially given the recent uncertainty thrown into markets with Russia’s invasion of Ukraine. A lot can happen at the open given the weekend’s reports that the West has banned certain Russian banks from SWIFT and has also said they will freeze assets from the CBR . Given the volatility this could create in EM with the RUB. However, even though the geopolitical situation will be important for the safe haven USD, with the US and the Fed being more isolated, the data will still be important, with the bigger reaction expected on a miss as opposed to a beat, given the amount of hawkishness already priced for the Fed. Just be mindful that the ban on SWIFT could create a slowdown in USD availability which could see the Fed being forced to open up additional swap lines to ease demand, that was a negative when announced in 2020 and can be a trigger for lots of downside (with the EUR a possible big benefactor if that’s the case).

EUR GBP - FUNDAMENTAL DRIVERS EUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics The Russian invasion of Ukraine opens up a lot of uncertainty for the EUR. On one hand, the decision to ban certain Russian banks from SWIFT was expected to impact the EU negatively, but the decision to freeze CBR assets means the expected FX reserve sales of Euros (to try and prop up the RUB) might not happen. The other consideration is energy, with the SWIFT bans, any restrictions on energy sales from Russia would put pressure on already high inflation and increases stagflation risks of higher inflation but falling growth. That does cloud the med-term outlook for the EUR and means we are happy to hold onto a neutral bias for now. 4. CFTC Analysis Participants are building into EUR longs. Large specs have seen 9/10 week of net increases in longs, asset managers have seen 10/12 weeks of net increase in longs and leveraged funds have reduced net shorts for 11 weeks in a row now. It’s safe to say that the sentiment for the EUR has improved given positioning data. However, the risk here is also that a lot of new bullish sentiment could have built up at the wrong time. 5. The Week Ahead It’ll be a difficult juggle for the EUR next week amid very important econ data and geopolitics. Monday’s open can be messy, as further sanctions on Russia over the weekend is a negative for the EUR but freezing assets from the CBR could mean less chance of dumping EUR reserves to prop up the RUB. Also keep USD liquidity squeezes in mind as a big drain on USD liquidity could see the Fed opening up swaps and could end up pressuring the USD & supporting the EUR. On the data side there will be a lot of focus on Wednesday’s HICP print. The upward surprise in Jan’s HICP was enough to see unanimous concern among the GC according to Pres Lagarde. This past week, ECB’s Lane said the Ukraine crisis presents a big risk to much higher inflation for 2022, and that comes amid already much steeper upwards projections to staff forecasts. Thus, an upward surprise to this week’s data would put more pressure on the ECB to go ahead with a possible policy recalibration at the upcoming March meeting and should be a positive input for the EUR (despite the geopolitical risks). Market implied rate expectations have dropped to just above 30bsp, which means an upside surprise in price pressures can spark some higher repricing. With so many negatives priced into the EUR over the past few months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April ( prev . 6.0%) & 5.21% in 1-year ( prev . 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation . Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Even though recent data started to look more constructive for Sterling from a sentiment point of view, the CFTC data remains a mix bag with no clear consensus view, and nothing really stretched by any means. 5. The Week Ahead The past week, our expectations for downside risks for Sterling materialized amid geopolitical risks but the bigger focus for us was the BoE’s hearing where the MPC struck a similar dovish tone like we saw during the press conference of the February policy decision. With close to 6 hikes already priced (possible peak hawkishness scenario), and growth expected to slow, and the BoE looking to stick to their recent dovish tones, that means the med-term risks for downside has become greater than that of further upside, and as a result we have decided to shift our currency bias to neutral from weak bullish . In the week ahead, there is very little important data on the schedule, but we do have speeches from BoE’s Saunders and Mann to watch out for. Apart from that, the ongoing geopolitical situation will be important to watch as last week’s sanctions saw outsized pressure on Sterling compared to the likes of the EUR. However, if the RUB sees enough downside and sparks deeper financial stability concerns then all European currencies are expected to be sensitive to the fallout and something to remember for the week ahead.

GBP USD - FUNDAMENTAL DRIVERS GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April (prev. 6.0%) & 5.21% in 1-year (prev. 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation. Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Even though recent data started to look more constructive for Sterling from a sentiment point of view, the CFTC data remains a mix bag with no clear consensus view, and nothing really stretched by any means. 5. The Week Ahead The past week, our expectations for downside risks for Sterling materialized amid geopolitical risks but the bigger focus for us was the BoE’s hearing where the MPC struck a similar dovish tone like we saw during the press conference of the February policy decision. With close to 6 hikes already priced (possible peak hawkishness scenario), and growth expected to slow, and the BoE looking to stick to their recent dovish tones, that means the med-term risks for downside has become greater than that of further upside, and as a result we have decided to shift our currency bias to neutral from weak bullish. In the week ahead, there is very little important data on the schedule, but we do have speeches from BoE’s Saunders and Mann to watch out for. Apart from that, the ongoing geopolitical situation will be important to watch as last week’s sanctions saw outsized pressure on Sterling compared to the likes of the EUR. However, if the RUB sees enough downside and sparks deeper financial stability concerns then all European currencies are expected to be sensitive to the fallout and something to remember for the week ahead. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility. But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. Even though the USD remains a net-long across large specs, leveraged funds and asset managers, it seems the EUR’s attractiveness has continued to grow and could mean more downside for the USD unless the Fed surprises even more hawkish, and the ECB stays dovish. Also keep safe haven flows in mind as the current geopolitical tensions does add another layer of complexity to the USD. 4. The Week Ahead Busy week ahead on the data front, with the ISM Manufacturing and Services, ADP national employment and of course the big one with NFP coming up on Friday. The recovery in recent data (Retail Sales & Industrial Prod) suggests a very similar covid bounce like we saw with Delta, and that point to a possible similar bounce in the ISM data this week. However, it’s important to keep in mind the growth trend is still tilted lower for the rest of 2022. Moving on to the jobs data, even though the headline ADP and NFP prints will as always garner attention, the bigger focus for the jobs data will arguably fall to the inflation prints like the Average Hourly earnings. The question is whether the data could beat enough to see markets pricing back a 50bsp hike, as probabilities for a 50bsp hike was sitting at just 26% on Friday. For now, it seems unlikely that a bigger than expected beat would seal the deal for a 50bsp move, especially given the recent uncertainty thrown into markets with Russia’s invasion of Ukraine. A lot can happen at the open given the weekend’s reports that the West has banned certain Russian banks from SWIFT and has also said they will freeze assets from the CBR. Given the volatility this could create in EM with the RUB. However, even though the geopolitical situation will be important for the safe haven USD, with the US and the Fed being more isolated, the data will still be important, with the bigger reaction expected on a miss as opposed to a beat, given the amount of hawkishness already priced for the Fed. Just be mindful that the ban on SWIFT could create a slowdown in USD availability which could see the Fed being forced to open up additional swap lines to ease demand, that was a negative when announced in 2020 and can be a trigger for lots of downside (with the EUR a possible big benefactor if that’s the case).

Today’s Notable Sentiment Shifts NZD – The New Zealand dollar jumped to five-week highs on Wednesday as the RBNZ hiked rates by 25 basis points and signalled a more aggressive path forward may be necessary. Commenting on the RBNZ’s February meeting, Westpac stated that “the biggest surprise was the extent of the lift in the projected OCR track – higher even than our top-of-the-market forecast of 3%... We continue to expect a series of 25bp hikes at upcoming policy reviews. However, given how much work the RBNZ believes it has ahead of it, the risk of a 50bp move at any given meeting remains live.”

CAD JPY - FUNDAMENTAL DRIVERS CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Despite STIR markets pricing in close to an 80% chance of a 25bsp hike, the BoC chose to leave rates unchanged at their Jan meeting. However, the bank removed its extraordinary forward guidance and said they now think the economic slack has been absorbed (previously expected to occur somewhere in the middle quarters of 2022). The bank also explained that they expect rates will need to rise based on the progress of inflation, and Gov Macklem explained their only reason for not hiking was uncertainty surrounding Omicron. The statement gave a clear signal that a March hike is on the table. Furthermore, on the balance sheet the bank delivered on expectations by noting they will likely exit the reinvestment phase as rates begin to rise. Even though 2022 inflation projections were upgraded, the bank also downgraded growth forecasts (which in our view remains a key reason why current STIR market expectations are not realistic). Thus, the meeting had both dovish and hawkish elements to it, and thus means we are still happy to hold to a neutral bias for the CAD. 2. Intermarket Analysis Considerations Oil’s massive post-covid recovery has been impressive, driven by various factors such as supply & demand (OPEC’s production cuts), strong global demand recovery, and of course ‘higher for longer’ than expected inflation. Even though Oil has traded to new 7-year highs, we think the current Russia/Ukraine tensions and recent tight capacity concerns are the biggest contributors to the upside as our cautious view going into Q1 & Q2 remain intact. The drivers keeping us cautious are A hawkish DM central banks targeting demand, slowing growth and inflation, lower inflation expectations (due to the Fed), a consensus that is very long oil (growing calls for $100 WTI). Recent geopolitical risks regarding Russia/Ukraine have been a key focus point for oil, but the increased chances of an Iran nuclear deal took some of the upside momentum away this past week. If Russia/Ukraine tensions stop sending oil prices higher, that tells us something about sentiment. 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis We think the recent price action and positioning data has seen the CAD take a very similar path compared to April and Oct 2021 where markets were way too aggressive and optimistic to price in upside for the CAD, only to then see majority of it unwind. We think the CAD is setting up for a similar disappointment with money markets too aggressive on rate expectations for 2022. 5. The Week Ahead Focus for the CAD is twofold this week with risk sentiment and Oil in focus. On risk sentiment and Oil, it’s a mixed bag for the CAD. Even though the oil market’s initial reactions to escalation and de-escalation were as expected, we did see the impact fading this week as some focus returned to the possibility of an Iran nuclear agreement came back on scene. We’ve initiated a new short on oil this past week (check out the rationale in the Trade Idea tab of the terminal), and if our rationale is correct and oil sees some downside in the sessions ahead, that opens up more room to the downside for the CAD as well. Then we have risk sentiment, where any further escalation is expected to be negative for risk sentiment (negative for the CAD) and any de-escalation is expected to be positive for risk sentiment (positive for the CAD). Just keep in mind that even though oil prices started to react less to geopolitical risks this past week doesn’t guarantee that it will continue to do so in the week ahead. However, if oil prices do react stronger to geopolitical risks that will make the CAD a tricky one to trade as oil and risk sentiment would move inverse to each other and mean the CAD could have both a push and pull effect on the CAD. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy No surprises from the BoJ at their Jan meeting. Despite some source reports which surprisingly suggested that the bank was starting to debate how soon a rate increase can be signalled, Governor Kuroda put that speculation to rest by stressing that the BoJ is not considering any hikes or tweaks to the current policy easing. The bank noted that risks to the inflation outlook are roughly balanced but risks to growth outlook is skewed to the downside. The Governor didn’t comment on specific FX levels, but said the current weak JPY is not bad for the economy. He also explained that it is not appropriate to stop the temporary inflation increases they are seeing by using monetary policy and that it’s too early to debate an exit from their current policy stance. The bank said that Japan will continue its expansive monetary policy unlike other G7s, and they are actively monitoring the economic impact from COVID-19 and won’t hesitate to add easing if necessary. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can be market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. However, as the Fed and other banks start to normalize, we do need to remember that it means those fiscal and monetary policy support are being reduced, which could mean a lot more volatility for markets in the weeks and months ahead. Even though that doesn’t mean our med-term bias for the JPY has changed, it simply means that we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create some fantastic directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the type of market environment from both a risk and cycle point of view. With the Fed tilting more aggressive, we think that opens up more room for curve flattening to take place with US02Y likely pushing higher while US10Y underperform. In this environment we do see some mild upside risks for the JPY, but we should not look at the influence from yields in isolation and weigh it up alongside underlying risk sentiment and price action in the USD of course. 4. CFTC Analysis Even though the JPY’s med-term outlook remains bearish , the big net-shorts for both large specs and leveraged funds always increases odds of punchy mean reversion when risk sentiment deteriorates. Thus, equities & US10Y will remain very important drivers for the JPY in the weeks ahead. 5. The Week Ahead In the week ahead, we once again expect one of the biggest influences for the JPY to be on geopolitics, with further escalations in tensions between Russia and Ukraine expected to see safe haven inflows into the JPY, and any de-escalations expected to see safe haven outflows from the JPY. Apart from risk sentiment, we’ll also be keeping a close eye on US10Y . With risk sentiment still shaky, and prospects of the economy being unscathed by the Fed’s hawkish plans looking slim right now, we still expect long-end yields to push lower in the weeks ahead, and if that happens it should prove supportive for the JPY (of course keeping equities in mind as well as downside in yields but upside in equities would see both a push and pull effect on the JPY).

USD JPY - FUNDAMENTAL DRIVERS USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With the USD still sitting on the biggest net-long position for large specs and leveraged funds, the odds of mean reversion are always higher, especially with more than 6 hikes priced in for the Fed. However, if there is enough demand for safe havens due to further Russia/Ukraine challenges then positioning might not matter too much. 4. The Week Ahead It’s a relatively quiet week for the US on the data front. Tuesday kicks off with Markit Flash PMI’s where focus will be on whether the recovery in Retail Sales and Industrial Production was also felt in the forward-looking and sentiment-based PMI’s. In terms of USD reaction, as both are growth measures, there is the chance the USD sees a similar inverse reaction like we’ve seen with other growth measures in recent weeks. On the inflation side we do have the Fed’s preferred measure of inflation (Core PCE ) on the schedule for Friday. As the Fed has tunnel vision for inflation right now the print will be important for us to watch. After a solid beat in CPI and PPI the market is skewed towards an upward surprise, which means it will arguably take a very sizable move above maximum expectations to see a meaningful bullish reaction in the USD and US10Y , while it also means that a surprise miss, especially after CPI and PPI can have an outsized reaction to the downside for both. Fed speak will also be watched to see whether appetite for a 50bsp hike has grown. Keep in mind the Fed’s blackout period for the March meeting starts next week Friday (5 March), so any prep of a potential 50bsp move needs to be communicated clearly by the Fed before then in order to avoid jumping that type of surprise on markets when they don’t expect it. Risk sentiment will once again be a key potential driver for the USD given the heightened geopolitical risks around Russia and Ukraine. Any risk off flows from further fears of invasion or actual escalations should be supportive for the USD as the world’s reserve currency and a safe haven, while strong de-escalation is expected to be negative driver in the short-term. JPY FUDNAMENTAL BIAS: BEARISH 1. Monetary Policy No surprises from the BoJ at their Jan meeting. Despite some source reports which surprisingly suggested that the bank was starting to debate how soon a rate increase can be signalled, Governor Kuroda put that speculation to rest by stressing that the BoJ is not considering any hikes or tweaks to the current policy easing. The bank noted that risks to the inflation outlook are roughly balanced but risks to growth outlook is skewed to the downside. The Governor didn’t comment on specific FX levels, but said the current weak JPY is not bad for the economy. He also explained that it is not appropriate to stop the temporary inflation increases they are seeing by using monetary policy and that it’s too early to debate an exit from their current policy stance. The bank said that Japan will continue its expansive monetary policy unlike other G7s, and they are actively monitoring the economic impact from COVID-19 and won’t hesitate to add easing if necessary. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can be market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. However, as the Fed and other banks start to normalize, we do need to remember that it means those fiscal and monetary policy support are being reduced, which could mean a lot more volatility for markets in the weeks and months ahead. Even though that doesn’t mean our med-term bias for the JPY has changed, it simply means that we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create some fantastic directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the type of market environment from both a risk and cycle point of view. With the Fed tilting more aggressive, we think that opens up more room for curve flattening to take place with US02Y likely pushing higher while US10Y underperform. In this environment we do see some mild upside risks for the JPY, but we should not look at the influence from yields in isolation and weigh it up alongside underlying risk sentiment and price action in the USD of course. 4. CFTC Analysis Even though the JPY’s med-term outlook remains bearish , the big net-shorts for both large specs and leveraged funds always increases odds of punchy mean reversion when risk sentiment deteriorates. Thus, equities & US10Y will remain very important drivers for the JPY in the weeks ahead. 5. The Week Ahead In the week ahead, we once again expect one of the biggest influences for the JPY to be on geopolitics, with further escalations in tensions between Russia and Ukraine expected to see safe haven inflows into the JPY, and any de-escalations expected to see safe haven outflows from the JPY. Apart from risk sentiment, we’ll also be keeping a close eye on US10Y . With risk sentiment still shaky, and prospects of the economy being unscathed by the Fed’s hawkish plans looking slim right now, we still expect long-end yields to push lower in the weeks ahead, and if that happens it should prove supportive for the JPY (of course keeping equities in mind as well as downside in yields but upside in equities would see both a push and pull effect on the JPY).

AUD USD - FUNDAMENTAL DRIVERS AUD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy At their Feb meeting the RBA delivered on expectations by announcing an end to QE purchases, and also upgrading inflation and employment forecasts. These were seen as hawkish developments, but the bank tried as hard as possible to still keep up a dovish impression by saying the ceasing of QE does not imply near-term rate increases and stating that it’s still too early to conclude that inflation is sustainably within the target band despite recent CPI prints. The bank maintained their view that the cash rate will not increase until inflation is sustainably within the 2%-3% target band. Now, call me crazy, but on that front, the bank’s projections forecast inflation to reach close to 3.25% this year and then see it returning to 2.75% during 2023, which surely implied ‘sustainable’ inflation. Comments from Gov Lowe the following day were slightly less dovish though by acknowledging that achievement of their inflation and employment goals are within reach. He also noted that even though it remains to be seen if rates will increase this year, there are clearly scenarios where the bank would be hiking this year (which was a step away from the tone and language used in the statement) but added that it’s still plausible that a first-rate hike is a year or more away. The February decision and tone could be summed up as an incremental step away from ultra-easy policy and means we have changed our Dovish stance for the bank to neutral. 2. Idiosyncratic Drivers & Intermarket Analysis Apart from the RBA, there are 4 drivers we’re watching for the med-term outlook: Covid - so far, the RBA has been optimistic about the recovery, but incoming employment and inflation data will be crucial to see if that optimism is justified. China – Even with PBoC stepping up stimulus & fiscal support expected in 1H22, the Covid-Zero policy poses a risk to China’s expected 2022 recovery and incoming data will be important. Politically, the AUKUS defence pact could see retaliation against Australian goods and is worth keeping on the radar. Commodities – Iron Ore (24% of exports) and Coal (18% of exports) are important for terms of trade, and with both pushing higher on PBoC easing, it’s a positive for the AUD if they remain supported. Global growth – as a risk proxy, the health of the global economy is important, which means expected slowdown in growth and inflation globally needs monitoring, but if China’s recovery is solid the fall out could be limited for the AUD. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Stretched positioning are usually a contrarian indicator and warning of potential squeezes. Thus, right now the AUD might be more sensitive to positive data or developments compared to negative ones as a lot of bad news has been priced in. This week all eyes are on the Wage Index data as well as risk sentiment of course. 5. The Week Ahead The time has finally arrived! This week will finally see the long-awaited and anticipated Wage Index data for Australia. Why is this such a big deal? Well, the RBA is obsessed with wage growth as they believe that without wage growth returning to close to 3% the chances of the bank reaching sustainable inflation within their target range is not possible. With Unemployment at 4.2%, CPI at 3.5% and GDP at 3.9%, the only piece of the puzzle that the bank needs to make their highly anticipated shift in policy is wage growth. In the bank’s defence, the historical chart for wage growth looks dismal, and despite recent upside we are still at historical lows. The trade is quite simple for wages, where a beat above the market’s maximum expectations is expected to see decent upside for the AUD as that will arguably see markets price in a policy shift from the RBA, while a miss below the market’s minimum expectations could see STIR markets coming back to earth and price out some of the 6 hikes priced for the bank this year. Apart from the wage index data, the other focus point will remain on risk sentiment with the ongoing tensions between Russia and Ukraine, where escalation is expected to be negative for risk sentiment (negative for the AUD) and any de-escalation is expected to be positive for risk sentiment (positive for the AUD). USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With the USD still sitting on the biggest net-long position for large specs and leveraged funds, the odds of mean reversion are always higher, especially with more than 6 hikes priced in for the Fed. However, if there is enough demand for safe havens due to further Russia/Ukraine challenges then positioning might not matter too much. 4. The Week Ahead It’s a relatively quiet week for the US on the data front. Tuesday kicks off with Markit Flash PMI’s where focus will be on whether the recovery in Retail Sales and Industrial Production was also felt in the forward-looking and sentiment-based PMI’s. In terms of USD reaction, as both are growth measures, there is the chance the USD sees a similar inverse reaction like we’ve seen with other growth measures in recent weeks. On the inflation side we do have the Fed’s preferred measure of inflation (Core PCE ) on the schedule for Friday. As the Fed has tunnel vision for inflation right now the print will be important for us to watch. After a solid beat in CPI and PPI the market is skewed towards an upward surprise, which means it will arguably take a very sizable move above maximum expectations to see a meaningful bullish reaction in the USD and US10Y , while it also means that a surprise miss, especially after CPI and PPI can have an outsized reaction to the downside for both. Fed speak will also be watched to see whether appetite for a 50bsp hike has grown. Keep in mind the Fed’s blackout period for the March meeting starts next week Friday (5 March), so any prep of a potential 50bsp move needs to be communicated clearly by the Fed before then in order to avoid jumping that type of surprise on markets when they don’t expect it. Risk sentiment will once again be a key potential driver for the USD given the heightened geopolitical risks around Russia and Ukraine. Any risk off flows from further fears of invasion or actual escalations should be supportive for the USD as the world’s reserve currency and a safe haven, while strong de-escalation is expected to be negative driver in the short-term.

NZD USD - FUNDAMENTAL DRIVERS NZD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The RBNZ underwhelmed some market participants who were looking for a 50bsp hike at their last policy meeting and the bank delivered a 25bsp hike as consensus was expecting. Even though the NZD took a plunge after the meeting, we don’t think markets are really giving NZD the upside it deserves after the Nov RBNZ decision. Not referring to the knee-jerk lower after the 25bsp hike of course as that was fully priced in and always ran the risk of underwhelming the bulls, but the outlook in the MPR justifies more NZD strength. The upgrades to the economic outlook between Aug and Nov were a lot more positive than expected, with growth seen lower in 2022 but much higher in 2023, CPI seen higher throughout 2022 and 2023, Unemployment seen lower throughout the forecast horizon, and of course the big upgrade to the OCR which is now seen at 2.6% by 2024. The bank also brought forward their expectation of reaching the 2.0% neutral rate by 5 quarters. For now, incoming data will be very important and any new developments with the new Omicron variant will be closely watched. Any major deterioration can see markets pricing out some of the hikes that has been priced in and is a risk to the outlook. However, if data stays solid, the recent sell off in the NZD does seem at odds with the fundamental, policy and economic outlook. 2. Economic and health developments Even though the NZ government has abandoned a covid-zero strategy, the recent rise in Omicron cases as well as well as the PM going into self-isolation is worth keeping on the radar. Turning to the econ data, the recent macro data, including Q4 CPI data has surpassed both market and RBNZ expectations. But markets have not been too bothered with the incoming data and have not given the NZD the upside it deserves. For now, based on the economic and policy outlook the NZD still seems undervalued at current prices, but we need to keep close track of the overall risk sentiment. 3. Global Risk Outlook As a high-beta currency, the NZD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the NZD. 4. CFTC Analysis Positioning changes has been very limited for the NZD in the past few weeks and with the flush out of net-longs among Leveraged Funds in Dec we can see that positioning is close to neutral for large specs, asset managers and leveraged funds. We are still more patient on the NZD until we hear from the RBNZ this week. 5. The Week Ahead It’s batter up for the RBNZ this week. The price action for the NZD has finally started to look more constructive after weeks and weeks of continuous downside, which was surprising given the hawkish outlook for the RBNZ as well as the solid economic outlook. After last week’s solid inflation expectations prints it was quite a surprise to see markets stick to expectations of a 25bsp hike, as usually that type of print should have seen markets at least opening up the possibility of a bigger move like 50bsp. Keep in mind that the last time the bank met for a policy decision was in November, so with solid CPI data, much higher house prices and inflation expectations data the bank could decide to make up for some lost time and push through a 50bsp hike. This past week has seen more constructive price action for the NZD though and might suggest that some participants are trying to pre-position for a 50bsp move and provides us with a clear scenario for the RBNZ meeting, where the question won’t be whether the bank hikes, but whether they hike in line with the 25bsp expected or whether they strut their stuff and show the Fed how it’s done by raising the OCR by another 0.50%. Whether they hike by 0.25% or 0.50%, at the current cash rate of 0.75% that would open up a very attractive carry attractiveness versus the low yielders, but as markets have been unwilling to give the NZD the upside it deserves, we’ll be approaching the currency with a lot of caution next week. The focus for the NZD like most risk sentiment assets is the geopolitical risks, where escalation between Russia and Ukraine is expected to be negative for risk sentiment (negative for the NZD) and any de-escalation is expected to be positive for risk sentiment (positive for the NZD). USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With the USD still sitting on the biggest net-long position for large specs and leveraged funds, the odds of mean reversion are always higher, especially with more than 6 hikes priced in for the Fed. However, if there is enough demand for safe havens due to further Russia/Ukraine challenges then positioning might not matter too much. 4. The Week Ahead It’s a relatively quiet week for the US on the data front. Tuesday kicks off with Markit Flash PMI’s where focus will be on whether the recovery in Retail Sales and Industrial Production was also felt in the forward-looking and sentiment-based PMI’s. In terms of USD reaction, as both are growth measures, there is the chance the USD sees a similar inverse reaction like we’ve seen with other growth measures in recent weeks. On the inflation side we do have the Fed’s preferred measure of inflation (Core PCE ) on the schedule for Friday. As the Fed has tunnel vision for inflation right now the print will be important for us to watch. After a solid beat in CPI and PPI the market is skewed towards an upward surprise, which means it will arguably take a very sizable move above maximum expectations to see a meaningful bullish reaction in the USD and US10Y , while it also means that a surprise miss, especially after CPI and PPI can have an outsized reaction to the downside for both. Fed speak will also be watched to see whether appetite for a 50bsp hike has grown. Keep in mind the Fed’s blackout period for the March meeting starts next week Friday (5 March), so any prep of a potential 50bsp move needs to be communicated clearly by the Fed before then in order to avoid jumping that type of surprise on markets when they don’t expect it. Risk sentiment will once again be a key potential driver for the USD given the heightened geopolitical risks around Russia and Ukraine. Any risk off flows from further fears of invasion or actual escalations should be supportive for the USD as the world’s reserve currency and a safe haven, while strong de-escalation is expected to be negative driver in the short-term.

GBP JPY - FUNDAMENTAL DRIVERS GBP FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April ( prev . 6.0%) & 5.21% in 1-year ( prev . 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation . Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments Even though growth estimates for the UK remain on solid footing, not everyone shares that optimism (Refinitiv polling data). With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces a risk of stagflation, with inflation staying sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower and inflation data stay high or even accelerate from here. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis With the most recent CFTC data is seems like leveraged funds have once again added to their net-longs for the Pound, and this is also the 2nd week where asset managers have reduced net-shorts, and large speculators are in positive territory. It seems sentiment is improving based on the recent positioning data alone. 5. The Week Ahead Very quiet data week scheduled for the GBP. The one event to watch though, and one that we think carries some downside risks to it is the Monetary Policy Report Hearings coming up on Wednesday. During these hearings the Governor and members of the MPC testify before the Treasury Committee. The Fed’s tone after the Feb policy decision means there is some downside risk to Sterling going into the hearing. Recall that Sterling struggled to maintain upside following the decision, despite seeing 4 of the 9 members voting for a 50bsp hike and despite big upgrades to the inflation outlook. The reason for this was the clear dovish tone exhibit by the Governor and Deputy Governor during the press conference, where they clearly tried to downplay the hawkish elements and stressed that their decision to hike rates was not based on the economy doing really well but rather because they think action was required to push inflation lower. With STIR markets pricing in close to 6 hikes for the BoE for the rest of the year, any further dovish push back from the bank during the hearing can see some of that froth priced out and can weigh on Sterling and gilt yields. We’ll be looking for any specific mention and push back against the current market implied rate path, and also for any potential clarity regarding the balance sheet with Chief Economist Pill recently saying the option to start selling gilts outright (QT) is not a done deal and is still a point of consideration. Thus, given the tone used at the presser as well as recent comments from the likes of Pill means there is downside risk for GBP going into the hearing. JPY FUDNAMENTAL BIAS: BEARISH 1. Monetary Policy No surprises from the BoJ at their Jan meeting. Despite some source reports which surprisingly suggested that the bank was starting to debate how soon a rate increase can be signalled, Governor Kuroda put that speculation to rest by stressing that the BoJ is not considering any hikes or tweaks to the current policy easing. The bank noted that risks to the inflation outlook are roughly balanced but risks to growth outlook is skewed to the downside. The Governor didn’t comment on specific FX levels, but said the current weak JPY is not bad for the economy. He also explained that it is not appropriate to stop the temporary inflation increases they are seeing by using monetary policy and that it’s too early to debate an exit from their current policy stance. The bank said that Japan will continue its expansive monetary policy unlike other G7s, and they are actively monitoring the economic impact from COVID-19 and won’t hesitate to add easing if necessary. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can be market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. However, as the Fed and other banks start to normalize, we do need to remember that it means those fiscal and monetary policy support are being reduced, which could mean a lot more volatility for markets in the weeks and months ahead. Even though that doesn’t mean our med-term bias for the JPY has changed, it simply means that we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create some fantastic directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in yield differentials, more specifically in strong moves in US10Y. However, like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the type of market environment from both a risk and cycle point of view. With the Fed tilting more aggressive, we think that opens up more room for curve flattening to take place with US02Y likely pushing higher while US10Y underperform. In this environment we do see some mild upside risks for the JPY, but we should not look at the influence from yields in isolation and weigh it up alongside underlying risk sentiment and price action in the USD of course. 4. CFTC Analysis Even though the JPY’s med-term outlook remains bearish, the big net-shorts for both large specs and leveraged funds always increases odds of punchy mean reversion when risk sentiment deteriorates. Thus, equities & US10Y will remain very important drivers for the JPY in the weeks ahead. 5. The Week Ahead In the week ahead, we once again expect one of the biggest influences for the JPY to be on geopolitics, with further escalations in tensions between Russia and Ukraine expected to see safe haven inflows into the JPY, and any de-escalations expected to see safe haven outflows from the JPY. Apart from risk sentiment, we’ll also be keeping a close eye on US10Y. With risk sentiment still shaky, and prospects of the economy being unscathed by the Fed’s hawkish plans looking slim right now, we still expect long-end yields to push lower in the weeks ahead, and if that happens it should prove supportive for the JPY (of course keeping equities in mind as well as downside in yields but upside in equities would see both a push and pull effect on the JPY).

EUR GBP - FUNDAMENTAL DRIVERS EUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered verylittle surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Funding Characteristics As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially against high yielding EM. As more central banks start normalizing policy and rate differentials widen, the EUR’s use as a funding currency could add additional pressure in the med-term , but if rates start moving closer to 0% in line with rate expectations that could change some of that funding attractiveness. 4. CFTC Analysis It looks like the sentiment for the EUR has not only changed for large speculators or asset managers (both hold net-longs), but the past week’s data has also showed a reduction in net-short for leveraged funds as well. We think there is more room for the EUR to gain if the ECB makes a policy pivot in March, until then we’re patient. 5. The Week Ahead Very quiet week on the data side for the EUR with Markit Flash PMI’s on Monday the only real highlight. It’s been a while since PMI data has been market-moving for the EUR, but after the ECB’s Feb meeting and the focus on a possible policy recalibration at the March meeting the incoming data will carry more weight. The bigger focus will of course be on the incoming HICP print on March 2nd. Turing to the PMI’s, it might not be enough to fully convince markets of what decision the ECB will take at their March meeting, but a very solid beat across the board can be enough to spark some short-term upside in the EUR after the ECB’s recent comments as well as ongoing Russia/Ukraine tensions have weighed on the single currency. With so many negatives priced into the EUR over the past couple of months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. So, a solid beat in both German and French flash PMI’s might be worth a potential short-term trade in the EUR, but as always lets wait for the data to confirm. The other factor to watch is the ongoing tensions between Russia and Ukraine, where the idea of possible military conflict on the doorstep has seen some risk premium built into the EUR this past week, and further escalation or de-escalation will be in focus for the EUR (escalation expected to pressure the EUR and deescalation expected to be supportive). GBP FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April (prev. 6.0%) & 5.21% in 1-year (prev. 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation. Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments Even though growth estimates for the UK remain on solid footing, not everyone shares that optimism (Refinitiv polling data). With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces a risk of stagflation, with inflation staying sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower and inflation data stay high or even accelerate from here. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis With the most recent CFTC data is seems like leveraged funds have once again added to their net-longs for the Pound, and this is also the 2nd week where asset managers have reduced net-shorts, and large speculators are in positive territory. It seems sentiment is improving based on the recent positioning data alone. 5. The Week Ahead Very quiet data week scheduled for the GBP. The one event to watch though, and one that we think carries some downside risks to it is the Monetary Policy Report Hearings coming up on Wednesday. During these hearings the Governor and members of the MPC testify before the Treasury Committee. The Fed’s tone after the Feb policy decision means there is some downside risk to Sterling going into the hearing. Recall that Sterling struggled to maintain upside following the decision, despite seeing 4 of the 9 members voting for a 50bsp hike and despite big upgrades to the inflation outlook. The reason for this was the clear dovish tone exhibit by the Governor and Deputy Governor during the press conference, where they clearly tried to downplay the hawkish elements and stressed that their decision to hike rates was not based on the economy doing really well but rather because they think action was required to push inflation lower. With STIR markets pricing in close to 6 hikes for the BoE for the rest of the year, any further dovish push back from the bank during the hearing can see some of that froth priced out and can weigh on Sterling and gilt yields. We’ll be looking for any specific mention and push back against the current market implied rate path, and also for any potential clarity regarding the balance sheet with Chief Economist Pill recently saying the option to start selling gilts outright (QT) is not a done deal and is still a point of consideration. Thus, given the tone used at the presser as well as recent comments from the likes of Pill means there is downside risk for GBP going into the hearing.

EUR USD - FUNDAMENTAL DRIVERS EUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered verylittle surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Funding Characteristics As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially against high yielding EM. As more central banks start normalizing policy and rate differentials widen, the EUR’s use as a funding currency could add additional pressure in the med-term, but if rates start moving closer to 0% in line with rate expectations that could change some of that funding attractiveness. 4. CFTC Analysis It looks like the sentiment for the EUR has not only changed for large speculators or asset managers (both hold net-longs), but the past week’s data has also showed a reduction in net-short for leveraged funds as well. We think there is more room for the EUR to gain if the ECB makes a policy pivot in March, until then we’re patient. 5. The Week Ahead Very quiet week on the data side for the EUR with Markit Flash PMI’s on Monday the only real highlight. It’s been a while since PMI data has been market-moving for the EUR, but after the ECB’s Feb meeting and the focus on a possible policy recalibration at the March meeting the incoming data will carry more weight. The bigger focus will of course be on the incoming HICP print on March 2nd. Turing to the PMI’s, it might not be enough to fully convince markets of what decision the ECB will take at their March meeting, but a very solid beat across the board can be enough to spark some short-term upside in the EUR after the ECB’s recent comments as well as ongoing Russia/Ukraine tensions have weighed on the single currency. With so many negatives priced into the EUR over the past couple of months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. So, a solid beat in both German and French flash PMI’s might be worth a potential short-term trade in the EUR, but as always lets wait for the data to confirm. The other factor to watch is the ongoing tensions between Russia and Ukraine, where the idea of possible military conflict on the doorstep has seen some risk premium built into the EUR this past week, and further escalation or de-escalation will be in focus for the EUR (escalation expected to pressure the EUR and deescalation expected to be supportive). USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With the USD still sitting on the biggest net-long position for large specs and leveraged funds, the odds of mean reversion are always higher, especially with more than 6 hikes priced in for the Fed. However, if there is enough demand for safe havens due to further Russia/Ukraine challenges then positioning might not matter too much. 4. The Week Ahead It’s a relatively quiet week for the US on the data front. Tuesday kicks off with Markit Flash PMI’s where focus will be on whether the recovery in Retail Sales and Industrial Production was also felt in the forward-looking and sentiment-based PMI’s. In terms of USD reaction, as both are growth measures, there is the chance the USD sees a similar inverse reaction like we’ve seen with other growth measures in recent weeks. On the inflation side we do have the Fed’s preferred measure of inflation (Core PCE ) on the schedule for Friday. As the Fed has tunnel vision for inflation right now the print will be important for us to watch. After a solid beat in CPI and PPI the market is skewed towards an upward surprise, which means it will arguably take a very sizable move above maximum expectations to see a meaningful bullish reaction in the USD and US10Y , while it also means that a surprise miss, especially after CPI and PPI can have an outsized reaction to the downside for both. Fed speak will also be watched to see whether appetite for a 50bsp hike has grown. Keep in mind the Fed’s blackout period for the March meeting starts next week Friday (5 March), so any prep of a potential 50bsp move needs to be communicated clearly by the Fed before then in order to avoid jumping that type of surprise on markets when they don’t expect it. Risk sentiment will once again be a key potential driver for the USD given the heightened geopolitical risks around Russia and Ukraine. Any risk off flows from further fears of invasion or actual escalations should be supportive for the USD as the world’s reserve currency and a safe haven, while strong de-escalation is expected to be negative driver in the short-term.

DXY - FUNDAMENTAL DRIVERS USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility. But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With the USD still sitting on the biggest net-long position for large specs and leveraged funds, the odds of mean reversion are always higher, especially with more than 6 hikes priced in for the Fed. However, if there is enough demand for safe havens due to further Russia/Ukraine challenges then positioning might not matter too much. 4. The Week Ahead It’s a relatively quiet week for the US on the data front. Tuesday kicks off with Markit Flash PMI’s where focus will be on whether the recovery in Retail Sales and Industrial Production was also felt in the forward-looking and sentiment-based PMI’s. In terms of USD reaction, as both are growth measures, there is the chance the USD sees a similar inverse reaction like we’ve seen with other growth measures in recent weeks. On the inflation side we do have the Fed’s preferred measure of inflation (Core PCE) on the schedule for Friday. As the Fed has tunnel vision for inflation right now the print will be important for us to watch. After a solid beat in CPI and PPI the market is skewed towards an upward surprise, which means it will arguably take a very sizable move above maximum expectations to see a meaningful bullish reaction in the USD and US10Y, while it also means that a surprise miss, especially after CPI and PPI can have an outsized reaction to the downside for both. Fed speak will also be watched to see whether appetite for a 50bsp hike has grown. Keep in mind the Fed’s blackout period for the March meeting starts next week Friday (5 March), so any prep of a potential 50bsp move needs to be communicated clearly by the Fed before then in order to avoid jumping that type of surprise on markets when they don’t expect it. Risk sentiment will once again be a key potential driver for the USD given the heightened geopolitical risks around Russia and Ukraine. Any risk off flows from further fears of invasion or actual escalations should be supportive for the USD as the world’s reserve currency and a safe haven, while strong de-escalation is expected to be negative driver in the short-term.

Today’s Notable Sentiment Shifts USD – The dollar index reached a two-week high on Monday, briefly jumping after comments from Ukraine’s President Volodymyr Zelenski added to market uncertainty surrounding rising tensions and the risk of a Russian invasion. Reuters explained that investors were spooked and fled to the dollar and other safe-havens after “Zelenski said he had heard that Wednesday could be the day of a Russian invasion”.

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