EUROPEAN FX UPDATE: Aussie flogged post-data, while Yen flexes muscles post-BoJ

Analysis details (10:15)

DXY/JPY/EUR

The Dollar paused for breath after Thursday’s sharp rebound on bullish US data and Euro depreciation on the back of a dovish ECB hike, but retained a firm underlying bid that enabled the index to close the remaining gap from July 11 and probe 102.000 for a complete comeback from its collapse to July 14 low. Conversely, Eur/Usd remained weak having closed below the psychological 1.1000 level that also had technical significance in the form of a Fib retracement in very close proximity and the headline pair subsequently retreated further from 1.0991 to 1.0944, with 1.7 bn option expiry interest at the round number acting more like a repellent than draw. However, the Buck faced strong competition from the Yen following the BoJ’s hawkish ‘surprise’ and effective widening of its 10 year JGB yield target band to -50/+100 bp around zero, as this hammered Usd/Jpy down to within single digit pips of 138.00 at one stage from 141.05 and overshot an already huge 200+ break-even via implied volatility for the event in the process. Nevertheless, a more neutral sounding press conference from Governor Ueda preceded a firm bounce in Usd/Jpy towards 140.00 and 1.3 bn option expiries at the 140.25 strike.

AUD/NZD     

Market pricing was already tilting heavily in favour of no change in rates from the RBA next week, and were even more justified when final Australian retail sales were downwardly revised to -0.8% m/m in June from a preliminary flat reading. Hence, Aud/Usd relinquished another big figure between 0.6713-0.6623 parameters and the Aud/Nzd cross backed off within a 1.0880-1.0797 range irrespective of the Kiwi losing altitude against the Greenback in sympathy with Nzd/Usd down to 0.6122 compared to 0.6193 at the other end of the spectrum.

GBP/CAD/CHF

Sterling continued to derive support from Eur/Gbp, but stayed top heavy vs its US counterpart awaiting independent direction from the BoE on August 3rd, while the Loonie waned ahead of Canadian monthly GDP and Budget balances, and the Franc failed to derive much impetus from a robust rebound in Swiss retail sales or a firmer than forecast KOF leading indicator. Cable meandered from 1.2764 to 1.2815, Usd/Cad from 1.3219 to 1.3249 and Usd/Chf from 0.8683 to 0.8736.

SCANDI/EM

The Sek could not take advantage of Eur weakness as Swedish macro releases disappointed on all fronts, including GDP, retail sales and unemployment, but the Nok outpaced its neighbour regardless of a marked slowdown in Norwegian consumption. Elsewhere, the Try was hampered by a Turkish trade deficit and sub-100 economic confidence in contrast to the Cny and Cnh that pared losses vs the Usd with the aid of another very supportive PBoC reference rate for the onshore unit.

28 Jul 2023 - 10:15- Fixed IncomeData- Source: Newsquawk