To The Moon

1.0 USD

Macro View & Key Themes:

Key Market Drivers:

JPM maintains a "Tactically Cautious" view on US markets, explicitly preparing for a multi-week period of elevated uncertainty as geopolitical risks dominate the trading tape.

JPM notes that while the US and EU saw a relief rally following US naval pledges, the overarching theme is a massive de-risking event across global portfolios.

Nomura highlights that the US ISM Services Index surprised to the upside, rising to 56.1 in February against a consensus of 53.5.

According to Nomura, US demand indicators remain exceptionally strong, with business activity, new orders, and export orders rising to their highest levels since 2024.

The backlog of orders index surged to a mid-2022 high, and while the prices paid index dropped to an eleven-month low of 63.0, it remains elevated compared to historical averages, complicating the Federal Reserve's inflation fight [Nomura].

The International Monetary Fund (IMF) warned that global economic resilience is being tested yet again by the Middle East conflict, adding fundamental support to the USD as the ultimate safe-haven liquidity provider [FXStreet].

Supply/Demand Fundamentals:

Fundamentally, the US Dollar is being anchored by a resilient domestic economy that is showing mixed but stable growth according to the latest Federal Reserve Beige Book [FXStreet].

Seven of the twelve Fed districts reported slight to moderate growth, though price pressures continue to persist across the board [FXStreet].

Strong ADP employment data and the robust ISM Services PMI have actively eased broader growth fears, fueling a rebound in US equities like the Dow Jones Industrial Average [FXStreet].

However, the threat of an inflation shock stemming from a 20% spike in crude oil prices threatens to heavily disrupt the fundamental supply/demand balance for the USD by altering rate cut expectations [SP Global].

JPM explicitly notes that physical storage limits are a critical risk to energy markets; Iraq and Kuwait have approximately 2 and 13 days respectively until they must shut in crude supply due to the Strait of Hormuz blockage.

If oil prices remain elevated, the resulting terms-of-trade shock will fundamentally favor the US Dollar over energy-importing nations in Europe and Asia.

2.0 G10 Currencies

Macro View & Key Themes:

The G10 currency complex is deeply fractured, with performance heavily stratified by each nation's relative exposure to the ongoing energy supply shock.

GS notes that the two primary dimensions through which FX markets are reacting to the geopolitical developments are a broad risk-off impulse and relative terms-of-trade shifts.

For European FX, energy supply disruptions have created a highly unfavorable combination of surging energy prices and deteriorating risk sentiment [GS].

The Euro (EUR) is under severe pressure, with EUR/USD edging lower below the 1.1650 level as Middle East tensions directly fuel US Dollar strength [FXStreet].

The sharp rise in European natural gas prices is particularly in focus for the Euro, echoing the severe supply shocks witnessed during the early months of 2022 [GS].

The British Pound (GBP) is testing key moving averages around 1.3370, heavily weighed down by recent growth downgrades and a general flight to safety [FXStreet].

Conversely, commodity-linked G10 currencies are finding pockets of fundamental support from the commodity super-cycle sparked by the conflict.

Key Market Drivers:

The Japanese Yen (JPY) is seeing renewed safe-haven demand, with USD/JPY pulling back from weekly highs near 157.90 to steady around 157.00 [FXStreet].

Earlier in the session, the Yen edged higher above 156.50 as the escalation of the Middle East conflict drove capital repatriation and defensive posturing [FXStreet].

The Australian Dollar (AUD) experienced a sharp reversal, rallying back to around 0.7080 on strong domestic GDP data and overall USD weakness, though it remains capped below its three-year highs [FXStreet].

AUD bulls were slightly tempered after Australia’s trade surplus narrowed to 2,631M MoM in January [FXStreet].

The New Zealand Dollar (NZD) surged sharply, jumping 0.73% to around 0.5940 and leading the G10 board on Wednesday as the broader Dollar retreat provided a window for high-beta currency outperformance [FXStreet].

The Canadian Dollar (CAD) jumped aggressively above the 1.3600 level against the Greenback, directly catalyzed by the massive 20% surge in global crude oil prices [FXStreet].

The Swiss Franc (CHF) is exhibiting unexpected weakness, with USD/CHF slumping below 0.7800 after a clash at the 50-day Simple Moving Average, indicating that safe-haven flows are bypassing the Franc in favor of the USD and JPY [FXStreet].

Supply/Demand Fundamentals:

GS benchmarks the current European FX performance against the 2022 gas supply shock, noting that the relative price action—including the underperformance of Central and Eastern European (CEE) currencies—is highly consistent with historical sensitivities.

The European natural gas market is currently pricing this shock as more temporary than the 2022 event, a dynamic that GS believes would have to shift significantly for the Euro to face a catastrophic devaluation.

From a fundamental perspective, the divergence between the AUD and JPY continues to be driven by shifting terms of trade; AUD/JPY dropped below 111.00 as Australia's narrowing trade surplus clashed with the Yen's safe-haven premium [FXStreet].

The Canadian Dollar's fundamental outlook has structurally improved overnight due to elevated WTI and Brent prices, strengthening Canada's current account balance.

The Bank of England's growth downgrade fundamentally restricts the GBP's ability to capitalize on any transient USD weakness, leaving Sterling highly vulnerable to further stagflationary shocks.

3.0 Asia Currencies

Macro View & Key Themes:

Asian markets are currently in a state of free fall, aggressively unwinding the "hottest AI trades" as exuberance gives way to sheer panic over an oil-driven inflation shock [Bloomberg].

JPM highlights that the APAC region has been absolutely "crushed" this week, bearing the brunt of the global de-risking event.

Foreigners are fleeing the region at a historic pace; overseas investors dumped a staggering $3.1 billion of South Korean shares this week alone, following a record $13.7 billion offloaded last month [Bloomberg].

Taiwan witnessed another $3.6 billion in outflows, putting the market on track for its worst week since late December as the heavily crowded long positions in the semiconductor sector are aggressively liquidated [Bloomberg].

GS notes that overnight volatility was intensely concentrated in Asia, with the Korean KOSPI index registering its largest one-day drop on record, plunging a terrifying 12%.

Despite the equity carnage, most emerging-market currencies saw a slight technical rebound on Wednesday as mixed signals around the Middle East conflict temporarily halted the oil rally and weighed on the dollar [Bloomberg].

Key Market Drivers:

The South Korean Won (KRW) managed a partial recovery late in the session, though the currency remains under immense structural pressure due to the catastrophic 20% weekly rout in memory chip heavyweights Samsung and SK Hynix [Bloomberg].

The Chinese Yuan (CNY) is being heavily defended by local authorities; the People’s Bank of China (PBOC) set the USD/CNY central parity rate at 6.9124, marking the strongest mid-point fixing in 34 months [FXStreet].

This aggressive PBOC fixing signals a clear mandate from Beijing to prevent currency destabilization amid the broader regional panic.

At the National People's Congress, China officially set its 2026 economic growth target at a pragmatic 4.5%–5%, down slightly from the 5% hit last year, reflecting a cautious fundamental outlook [FXStreet].

DBS Group Research warned that while the Singapore Dollar (SGD) benefits from strong domestic growth momentum and low inflation, the city-state is highly exposed to the risks of soaring oil costs and massive supply chain disruptions [FXStreet].

Asian petrochemical markets are flashing red; Platts reports that Asian Benzene, ABS, Propylene, and Butadiene prices are surging to multi-month highs as crackers across South Korea (such as YNCC) declare force majeure due to the blockade of the Strait of Hormuz.