EUROPEAN FX UPDATE: Buck off best levels, but still firmly bid

Analysis details (10:32)

DXY

The Dollar and index eased off the gas in line with a modest bounce in US Treasuries and downturn in broad risk sentiment, but not before further extensions to the upside that saw the Greenback probe or touch more key levels against rival currencies and the DXY reach 102.830 for a 100+ tick rebound from recent lows. Indeed, many Usd/major and EM pairings remained elevated, while even the Aussie pulled back pretty sharply from overnight peaks forged on the back of a top end of forecast range 50 bp RBA hike. 

NZD/JPY

A rather unceremonious return from Monday’s NZ market holiday for the Kiwi, as Nzd/Usd relinquished 0.6500+ status and slipped under 0.6450 amidst strong headwinds from the Aud/Nzd cross that rebounded circa one big figure to 1.1160 on the aforementioned aggressive RBA policy action. However, the Yen is still keeping the spotlight off most others for all the wrong or at least inauspicious reasons, as the negative BoJ/Fed divergence dynamic continues to impact and propel Usd/Jpy even higher towards the only 2002 peak left, at 135.15 vs bang on 133.00, so far, and with added incentive from softer than expected Japanese household spending metrics.

CHF/GBP

The Franc is also feeling the adverse effects of contrasting SNB vs Fed etc policy stances, with Usd/Chf hovering between 0.9754-00 parameters and Eur/Chf above 1.0400 in the run up to the ECB on Thursday, while the Pound appears almost as uncertain following the UK confidence vote as it was before PM Johnson survived his leadership test given a clear margin of victory, but concerning 148 Conservative MPs in opposition. Indeed, Cable initially recoiled through 1.2500, the 21 DMA (around 1.2470 today) to trip stops at 1.2460, but bounced to revisit the round number when the Buck eased back and index dipped beneath 102.500 to 102.450.

AUD/EUR/CAD   

All holding up better than their G10 counterparts in the face of receding risk appetite and their US peer’s revival, as the Aussie climbs off a 0.7159 low, the Euro from 1.0665 and Loonie pares losses beneath 1.2600, with help from varying degrees of hawkish Central Bank vibes. Aud/Usd is underpinned by the RBA opting to go large and guiding for further tightening, Eur/Usd ahead of this week’s ECB meeting when an and to the APP at the start of July is seen being flagged, paving the way for a hike later that month, and Usd/Cad remains capped after last Wednesday’s hawkish half point BoC rate rise, as attention turns to Canadian trade alongside the US balance and then Ivey PMIs.

SCANDI/EM  

The deteriorating market mood is undermining both the Sek and Nok, as the former also takes on board a narrower Swedish current account surplus and the latter a deeper retracement in Brent with WTI. However, the Try cannot catch a break it seems, as Turkish President Erdogan maintained his unorthodox approach to tackling inflation via easing monetary policy on Monday, in contrast to the Zar that has regained upward momentum in tandem with Gold towards Usd 1850/oz having breached virtually aligning 21 and 200 DMAs yesterday (Usd 1842.25 and Usd 1842.55 respectively to be precise), and better than consensus SA GDP.

07 Jun 2022 - 10:32- Fixed IncomeResearch Sheet- Source: Newsquawk