EUROPEAN FX UPDATE: Buck contained quiet pre-NFP trade, high betas on the defensive and EUR continues to feel the ECB tailwinds

Analysis details (10:03)

DXY, EUR

The index has drifter off worst levels but remains subdued by the resilient EUR following yesterday’s hawkish ECB, with news flow relatively light in the European morning from a fundamental standpoint. DXY remains north of 95.000 but caged to a 95.135-388 range (100 DMA at 95.190) ahead of the US jobs report which will likely be used to assess whether the market’s aggressive Fed bets are appropriate (Full Newsquawk preview available in the Research Suite). Money markets currently expect the FOMC to fire the equivalent of four 25bps rate hikes in 2022 to curb upside pressures to inflation, with some risk of a fifth. The Single Currency remains buoyed by the ECB fallout triggering more hawkish calls, Goldman Sachs expects the ECB to hike its Deposit Rate by 25bps in September and December 2022 and expects the ECB to decide in March that it will end APP in June. Meanwhile SocGen now sees ECB asset purchases ending by mid-year, rates to rise in H2 2022, and for EUR/USD to hit 1.1600 if risk sentiment holds up. In terms of trade, EUR/USD remains north of its 100 DMA (1.1427) as the pair meanders around 1.1450.

AUD, NZD, CAD, GBP

All softer vs the USD and the EUR. Sterling fares the best in the bunch amid follow-through from the hawkish BoE hike yesterday. GBP/USD has waned from yesterday’s 1.3628 peak and trades around 1.3571 at the time of writing, with the EUR/GBP cross also eyeing its 100 DMA around 0.8455. Antipodeans are softer to varying degrees with the AUD the laggard as the RBA Statement on Monetary Policy (SoMP) maintained a dovish tone. NZD is cushioned by the AUD/NZD cross holding most of its recent losses amid central bank divergence. The CAD overlooks the gains in the crude complex and remains on the defensive around of the Canadian jobs report later. USD/CAD sees its 100 DMA around 1.2711.

JPY

The JPY is resilient with USD/JPY probing the 115.00 mark at the time of writing. The pair pulled back under the level overnight in tandem with the Japanese yields increases – which saw the 5yr and 10yr yields reached levels last seen in January 2016. The traditional haven is also on standby for the US jobs report whilst geopolitics simmer in the background as Russia and China reaffirmed their partnership ahead of further talks with the West next week. 

04 Feb 2022 - 10:03- Fixed IncomeResearch Sheet- Source: Newsquawk