EUROPEAN FX UPDATE: Contained trade seen across G10s amid the looming US CPI and accompanying Fed speakers

DXY

The index is flat in early trade having notched a narrow APAC range. Fresh session lows were printed heading into the European cash open but DXY now stays within a tight 106.23-40 parameter ahead of the US CPI print – Full Newsquawk preview available here. Fed speak is also set to pick up after the CPI report, Fed's Evans and Kashkari are due on Wednesday after the CPI report while Daly is to speak on Thursday, whilst unscheduled speakers are likely to conduct impromptu interviews on business TV and wires. Participants are on the lookout for clues in their remarks to gauge their appetite for another 75bp move in September and to see how high the Fed is willing to go, and for how long, with some desks flagging the potential for a 100bps increase, should the CPI report come in notably hotter than expected. SGH’s Chief US Economist Tim Duy wrote this morning - “we need a substantial downside miss on July core inflation to keep the 50bp option open. A consensus or bigger number will more likely than not lock in 75bp.” From a technical standpoint, the index sees its 10 DMA at 106.141 today ahead of the psychological 106.00 mark and yesterday’s 105.96 trough, whilst the upside sees the 21 DMA at 106.69 ahead of the Monday high at 106.81.

EUR, GBP

Both are modestly firmer vs the Dollar but flat against each other. EUR/USD resides in a tight band above 1.0200 with no action seen in wake of unrevised German and Italian CPIs – with the 10 and 21 DMAs seen at 1.0204 and 1.0177 respectively. Analysts at ING suggest “There is no European data of note today and EUR/USD will therefore be bounced around by the US CPI print. Declining levels of implied volatility suggest investors may be in no mood to chase EUR/USD out of a 1.0100-1.0300 range near term.” Furthermore, it is worth being aware of the situation regarding Germany’s drying Rhine river, with reports suggesting that it will be effectively impassable at a key point on August 12th – which will likely hinder large flows of diesel and coal at a time Russian gas flows are uncertain. Meanwhile, the NY cut eyes several option expiries at 1.0170-75 (1.84BLN), 1.0195-05 (690M), and 1.0210-20 (1.95BLN). Cable is similarly firmer after finding support near its 21 DMA (1.2050), but remains under 1.2100. Upside levels include the 10 and 50 DMAs at 1.2137 and 1.2149 respectively.

AUD, NZD, CAD

The antipodeans reside towards the top of the bunch, but again the breadth of the market is narrow. AUD/USD trades on either side of its 10 DMA (0.6965) in a 0.6948-71 range. NZD/USD found support at its 50 DMA (0.6273) and topped its 10 DMA (0.6283). Meanwhile, the Loonie’s upside remains capped by the softer oil prices. USD/CAD found resistance near its 21 DMA (1.2893) before dipping under its 50 DMA (1.2875) in a current 1.2874-95 parameter.

JPY

The Yen also trades sideways as it eagerly awaits the US CPI metrics. The FOMC-BOJ pricing will likely drive USD/JPY after the CPI dust settles, in a similar vein to what was seen after the FOMC July meeting and then the NFP last week. USD/JPY trades on either side of 135.00 with the 50 DMA at 135.24, 21 DMA at 135.81 and USD 1.2bln in OpEx between strikes 133.90-134.00

10 Aug 2022 - 09:20- Research Sheet- Source: Newsquawk