EUROPEAN FX UPDATE: Dollar declines underpin G10 peers pre-Jackson Hole

Analysis details (09:38)

DXY

The index has been on a softer footing since APAC hours as the positive sentiment from Eastern markets reverberates to the West as the clock ticks down to the Fed Jackson Hole Economic Symposium, which will likely be alongside several impromptu Fed officials doing the rounds on business TV. On the data front, US revisions to Q2 GDP are due alongside quarterly PCE and weekly IJC – “Buy-side surveys have suggested that it would take initial jobless claims moving above 300k (now 250k) to spark a Fed pivot. Given heavy long dollar positioning, the FX market does seem very sensitive to any softer than expected US data, hence the need to watch initial claims today”, analysts at ING warn. Heading into month-end, Morgan Stanley’s FX model signals USD weakness, and suggests USD should trade softer vs G10s ex-CHF. From a technical perspective, DXY has pulled back from the current 108.68 high to a low of 107.97, with the 10 DMA seen at 107.51 ahead of the August 19th low at 107.48.

EUR, GBP

G10s are broadly firmer vs the USD but to varying degrees, with the EUR and GBP towards the bottom of the bunch. EUR/USD trades on either side of parity whilst downside momentum briefly paused after German August Ifo topped forecasts, although the economists warned a recession remains on the cards, and almost half the firms surveyed intend to hike prices in the coming three months. EUR/USD sees a couple of major option expiries near the money: 0.9950-55 (EUR 1.24bln), 1.0000-10 (EUR 2.7bln). Ahead, the ECB minutes will be released, but given the fast-paced nature of inflationary developments within the Eurozone, any policy signals towards the September meeting will likely be deemed as stale. From a technical perspective, EUR/USD sees the Aug 22nd high at 1.0046 ahead of the 10 DMA at 1.0076. GBP/USD meanwhile eyes its Aug 23rd high at 1.1876, then the 10 DMA at 1.1931. EUR/GBP sees several DMAs in close proximity: 50 DMA (0.8486), 100 DMA (0.8474), 10 DMA (0.8443), 200 DMA (0.8436), and 21 DMA (0.8424).

AUD, NZD, CAD

Antipodeans stand as the current outperformers amid the softer Dollar, rise in base metals, and overall risk sentiment. AUD/USD rose from a 0.6901 session low, above its 50 DMA (0.6914), 10 DMA (0.6957) and 21 DMA (0.6973) ahead of the 0.7000 mark. NZD/USD reclaimed a 0.6200+ handle as it eyes the Aug 23rd high at 0.6244, then the 50, 10, and 21 DMAs at 0.6250, 0.6267, and 0.6287 respectively. CAD sees its upside capped by a pullback in crude prices, with USD/CAD still above 1.2900 in a 1.2905-75 range.

JPY

Firmer against the USD, relatively flat vs the GBP and EUR, and softer vs the AUD. USD/JPY resides around 136.50 (136.41-137.20 range) will little immediate action seen in wake of BoJ’s Board Member Nakamura suggesting JPY has weakened significantly so far this year, high volatility has had a big impact on Japan's economy, but it is premature to tweak the BoJ's dovish guidance now.

25 Aug 2022 - 09:38- ForexData- Source: Newsquawk