EUROPEAN FX UPDATE: Aussie suffers contagion and Euro hit by long liquidation

Analysis details (10:10)

DXY/EUR

What a difference a day makes, or even less for the Dollar and index that rebounded strongly from post-US CPI lows to set new peaks for the week to date, albeit thanks in large part to the failure of others to push on and take maximum advantage when the Buck looked on the brink of a more pronounced collapse. The DXY bounced off a modestly higher 101.300 low compared to its 101.210 midweek trough before regaining 102.500+ status and then extending beyond the prior session high and Tuesday’s best (101.800 and 101.840 respectively) to reach 101.940. Conversely, the Euro hit a brick wall just shy of 1.1000 against the Greenback and reversed further through a key chart point that had been propping the pair on a closing bases (Fib at 1.0959) to probe 1.0925 where one among a raft of hefty option expiries sat (1.7 bn) - see 7.26BST post on the Headline Feed for the other big Eur/Usd strikes rolling off today. In terms of a catalyst, the headline pair seemed to be rattled by divergence in UST/EGB differentials, regardless of more hawkish-sounding ECB remarks and a general paring down of positions given an arguably overbought or overextended base.

AUD

Notwithstanding the Euro’s demise and weakness elsewhere, the Aussie was actually the G10 laggard amidst Yuan depreciation on the back of much softer than forecast Chinese inflation data and a retreat in iron ore prices that offset a jump in inflation expectations compiled by the Melbourne Institute. Indeed, Aud/Usd recoiled from just under 0.6800 to sub-0.6725, irrespective of constructive vibes surrounding the meeting between Australia’s Trade Minister and China’s Foreign Ministry.

NZD/CHF/GBP/CAD/JPY    

All back-pedalling vs their US peer, mainly in sympathy or simply unable to swim against the changing tide. The Kiwi fell from circa 0.6384 to 0.6330 with little support from the NZ Finance Minister pledging a sustainable budget, and the Franc from just above 0.8900 towards 0.8950 even though SNB Chief Jordan reiterated that inflation is above the price stability range and current monetary policy is still not restrictive enough, so the Bank cannot rule out hiking rates further and is willing to use FX sales as a policy tool if needed. Meanwhile, Sterling let go of the 1.2600 handle awaiting high noon on Threadneedle Street and the latest ‘super’ Thursday BoE event having already factored in another 25 bp hike and what would amount to twelve MPC tightening moves in a row, the Loonie recoiled from 1.3364 to 1.3420 and the Yen from 133.90 to 134.84 following the BoJ’s SOO that effectively repeated the rationale for maintaining ultra-easy policy in April. Back to the Pound, and implied volatility in options indicates a 66 pip break-even in Cable over the BoE. 

SCANDI/EM

The Nok regrouped after a post-CPI setback and may have gleaned some encouragement from the Norwegian Government noting that domestic economic remains high, albeit growth is slowing, but the Czk was rattled following considerably below consensus Czech CPI, and the same went for the Cny and Cnh as the former dipped beneath the 200 DMA and latter 6.9500 against the Usd.

11 May 2023 - 10:10- Fixed IncomeData- Source: Newsquawk