EUROPEAN FX UPDATE: Dollar continues to drift and rivals recover

Analysis details (10:39)

DXY

The Buck is softer almost across the board on a combination of further long liquidation to the benefit of its peers, but also strength in counterpart currencies in their own right or due to specific factors. Accordingly, the index has slipped again and into another lower range just shy of 103.000 and above 102.000 having lost momentum between 103.880-102.650 and 103.260-102.760 parameters last Thursday and Friday respectively amidst largely unsupportive US macro releases and Fed rhetoric merely underscoring the message that two more 50 bp hikes are in the offing after the start of QT at a pre-set pace for the first three months, at least. Hence, the Greenback looks in need of fresh impetus and this could come via commentary and guidance from speakers or minutes to the May FOMC meeting plus data like core PCE as the week progresses, while for today Bostic is due to speak after the April national activity index.

NZD/AUD

Q1 retail sales loom for the Kiwi, but the data would have to be abject to alter expectations for another 50 bp hike by the RBNZ on Wednesday and a majority on the NZIER shadow members agree with that likelihood. Meanwhile, a rebound in iron ore prices and the Yuan amidst more re-opening in Shanghai and prospects that the US might reduce tariffs on Chinese goods if propping up the Aussie along with relief that the weekend elections did not result in a hung parliament, as Labour’s Alabanese saw off a late challenge by the Liberal-National Coalition led by Morrison. Nzd/Usd is holding above 0.6450 and Aud/Usd is hovering under 0.7100 as the Aud/Nzd cross sits near the base of a 1.1025-1.0975 band following remarks from RBA Assistant Governor Kent overnight who stated that the neutral rate is estimated to be between 2%-3% based on models, adding that policy is currently quite stimulatory and stagflation isn't a major issue right now.

EUR

The Euro was looking toppy on the 1.0600 handle vs the Dollar even after forecast-beating German Ifo survey metrics as the accompanying statements were not quite as upbeat on balance (see 9.00BST on the Headline Feed for more), but all changed when ECB President Lagarde spoke and echoed other GC members on the end of NIRP by Q3 timetable, based on the current outlook (checkout the Headline Feed at 9.15BST). Eur/Usd formed a firmer platform to target its early May high and then breached 1.0650 to set a fresh m-t-d apex beyond Fib resistance at 1.0668 (38.2% retracement of the decline from 1.1185 to 1.0349), leaving little in the way of the next round number above.

GBP/CHF/CAD/JPY

No surprise that the Pound, Franc, Loonie and Yen also forged more gains against the Buck thanks to the Euro, as the DXY reversed even further, with Cable on the cusp of 1.2600, Usd/Chf sub-0.9700, Usd/Cad beneath 1.2800 and Usd/Jpy below 127.50.

SCANDI/EM  

A firm bounce in Brent and less bearish technical impulses gave the flagging Nok a lift, but the Sek could not keep pace with the resurgent Eur, in keeping with the Try in terms of not being able to take advantage of the weaker Usd in wake of the latest CBRT survey showing even higher year end forecasts for Turkish CPI, the current account deficit and Usd/Try. Elsewhere, some traction for the Inr via hawkish rhetoric from RBI Governor Das (sees at least one more hike and will not allow runaway Rupee depreciation), the Pln from NBP Governor Glapinksi (tightening to continue until confident about inflation falling permanently) and Cnh/Cny from US President Biden reiterating that the reduction of some Chinese tariffs is under consideration.

23 May 2022 - 10:39- Fixed IncomeData- Source: newsquawk