EUROPEAN FX UPDATE: Choppy trade across G10s as the US returns and eyes turn to the BoJ

Analysis details (10:06)

DXY

A choppy Tuesday session thus far for the Dollar as the index matched yesterday’s 102.56 peak in APAC hours before waning towards the unchanged mark ahead of the European cash open. That said, DXY remains in a tight 102.22-56 parameter (vs yesterday’s 101.77-102.56 band) as US participants look to add liquidity to markets as they return from the long weekend. From a technical perspective, Friday’s top resides as 102.66 with clean air above that seen until the psychological 103.00. Ahead, the stateside docket is thin during European hours, but Fed’s Williams’ speech at 20:00GMT/15:00EDT will likely be watched for further central bank rhetoric, whilst the BoJ will likely dictate price action in the upcoming APAC session.

CNH

Overall softer intraday despite supportive Chinese data overnight - which saw Q4 GDP, IP and Retail Sales top expectations across the board. China’s customs suggested 2022 GDP grew 3.0% Y/Y - much slower than the nation’s ‘abandoned’ growth target of about 5.5%. Nonetheless, there was no major immediate reaction in the CNH at the time, with USD/CNH since rising to a current high of 6.7842 (vs low 6.7344), ahead of its 10 DMA at 6.7902 and as its 21 DMA and 200 DMA cross at 6.8829. Participants should be aware of the upcoming Chinese New Year which will see Chinese players away from January 21st -29th.

JPY

All eyes turn to the next scheduled major risk event - the BoJ policy meeting in the upcoming APAC session. Ahead of the event, USD/JPY is choppy in a 128.23-129.13 parameter, but within recent ranges, whilst the technical “death cross” is more evident as the 50 DMA (135.60) falls further below the 200 DMA (136.67). Market expectations for the BoJ are somewhat mixed as Governor Kuroda is expected to remain dovish until his term ends in April, but against the backdrop of the 10yr JGB yield topping and extending above the recently tweaked 0.50% upper limit. Bank of America has outlined the potential market reaction to several scenarios in which no change in policy and measures to contain yields will likely keep the 10yr JGB yield at 50bps, lift USD/JPY to between 132-133, while it expects a widening of the upper ceiling by 25bps to boost the 10yr yield to 75bps, USD/JPY to be flat/slightly up at between 128-130. Furthermore, BofA sees the removal of YCC to lift the 10yr yield to 70bps, USD/JPY to decline to between 125-128, while it predicts the abandonment of both YCC and NIRP to lift the 10yr yield to 100bps, and USD/JPY to drop to between 120-125.

GBP, EUR

Mixed trade is seen across the major European currencies with Sterling leading the way following the UK jobs data following strong wages metrics which subsequently lifted BoE market pricing for a 50bps hike (at the time) to around 72% from 63% pre-release. GBP/USD is closer to the top of its current 1.2171-2230 range with downside levels including the 10 and 21 DMAs at 1.2136 and 1.2094 respectively, whilst to the upside, yesterday’s 1.2289 peak could provide resistance. EUR/USD is contained within a 30-pip range with a fleeting 10-pip reaction seen to the mixed (vs expectations) German ZEW metrics.  

NZD, AUD, CAD

Mixed trade among the non-US dollars with the NZD the outperformer, AUD flat, and CAD the laggard at the time of writing. AUD initially saw some modest support from the above-forecast Chinese data mentioned above, although this faded heading into European trade as sentiment tilted modestly to the downside. NZD/USD reclaimed 0.6400 but remains within yesterday’s 0.6359-6426 range. CAD meanwhile fails to benefit from the fluctuations in oil prices as traders look ahead to December CPI metrics later today. USD/CAD tests its 10 DMA (1.3431) at the time of writing with levels to the upside including Friday’s high (1.3439). Thursday’s peak (1.3454), followed by the 50 and 100 DMAs at 1.3494 and 1.3501 respectively.

17 Jan 2023 - 10:05- Research Sheet- Source: Newsquawk