EUROPEAN FX UPDATE: A risk-induced Dollar decline offers G10s reprieve

Analysis details (09:26)

DXY, Yuan

The Dollar index drifted higher overnight but remained within a tight 108.61-90 range heading into the European open. Desks have framed the overnight strength around APAC players reacting to yesterday's rise in yields, alongside the energy crisis pressuring Europe and large parts of Asia. DXY oscillated within that range before declining further and dipping under yesterday's 108.47 low. The downward price action seen after the cash open coincided with a pickup in the broader risk sentiment. In terms of support, the 10 DMA sits at 108.28 ahead of Friday’s 107.54. The Chinese Yuan again gained focus overnight after it remained weaker vs the Dollar (USD/CNY traded north of 6.9200) despite the PBoC setting USD/CNY mid-point at 6.8802 vs exp. 6.9076 (prev. 6.8698). “Perhaps USD/CNH traded volatility (one month now 6%) should be even higher than it is today since recent price action points to the PBoC either losing control of the renminbi market or indeed finally shifting to a more flexible FX regime – both of which should deliver more realised volatility”, analysts at ING posit.

EUR, GBP

The single currency is among the top performers with the EUR gaining some more composure as European gas prices waned further off recent highs, albeit remain elevated. German state CPIs were largely in-fitting with expectations for the nationwide metric, whilst ECB’s Vasle and Holzmann are due to make appearances during the session. EUR/USD has reclaimed status above parity and eclipsed yesterday’s 1.0028 high and currently resides in a 0.9983-1.0033 range. GBP/USD also benefits from the Dollar pullback but struggles to top yesterday’s 1.1751 peak as it sits in a 1.1689-1.1744 parameter. EUR/GBP is choppy with the cross briefly pulling back to a 0.8520 low shortly after testing 0.8550 to the upside.

AUD, NZD, CAD

All firmer against the Dollar to varying degrees. AUD/USD topped its 50 DMA (0.6912) and 10 DMA (0.6914) as sentiment picked up, with the pair now eyeing its 21 DMA 0.6961 ahead of Friday’s 0.7009 high and its 100 DMA (0.7015). NZD/USD similarly eyes several DMAs to the upside with its 10, 50, and 21 DMAs seen at 0.6197, 0.6240, and 0.6266 respectively. AUD/NZD also trades with an upside bias north of 1.1200. CAD is also supported by the rise in crude prices, with USD/CAD slipping from a 1.3025 high to test its 10 DMA at 1.2977.

JPY, CHF

A divergence is seen between the traditional havens vs the USD, whereby JPY gains after yesterday’s underperformance whilst the CHF lags as the only G10 (ex-USD) with losses at the time of writing, possible as a function of the EUR amid a slight ECB-SNB divergence as per recent central bank commentary. USD/JPY tested 139.00 to the upside in yesterday’s session and remains above 138.00 in recent trade, with technicians citing support at 137.26 – which marks the 76.4% Fib of the 139.38-130.40 decline.

30 Aug 2022 - 09:26- Forex- Source: Newsquawk