EUROPEAN FX UPDATE: Dollar dejected but JPY leaps in the post-Powell aftermath

DXY

The Dollar index remains suppressed in the post-Powell aftermath of dovishly-received remarks from the Fed Chair, whereby the kicker was that the December FOMC meeting may be the time to downshift to a moderate pace of rate hikes - which was understood by markets to be 50bps rather than 75bps. However, some remain sceptical of the move in markets, with desks such as ING suggesting: “We are tempted to say that looks an overreaction in that while Chair Powell did acknowledge the slowing in the pace of hikes, his core message was one of stubbornly high core inflation, particularly in the core services ex-housing category.” Nonetheless, DXY yesterday slipped from a 107.19 peak to a 105.77 low, with losses extending in today’s session from a 105.90 intraday high to a 105.30 base – matching the lows from the 15th and 28th November and dipping under its 200 DMA which today stands at 105.51. Eyes now turn to the monthly Core PCE metrics – the Fed’s preferred gauge inflation – with the M/M expected at 0.3% and the Y/Y at 5.0%, whereby an upside surprise could see a reversal of yesterday’s losses, some desks posit. The docket also has several Fed speakers on the slate following the PCE release.

JPY

The JPY has been the greatest beneficiary of the Powell-induced narrowing in the Fed-BoJ differential and as US yields sold off yesterday. USD/JPY extended on losses overnight as APAC players reacted to the Fed Chair’s comments, with the pair slipping from a 138.11 intraday high to a 135.81 low at the time of writing. The next downside levels include the 19th Aug low at 135.70 followed by the 18th Aug trough at 134.63 and then the 200 DMA at 134.42.

NZD, GBP, AUD, EUR

All firmer against the Dollar but to varying degrees and lesser magnitudes than their Japanese peer. NZD/USD topped its 200 DMA (0.6289 today) post-Powell before testing levels close to 0.6350, ahead of the 0.6383 peak set on 17th August. GBP/USD reclaimed 1.2100-status after finding support near 1.2050 overnight, with the 200 DMA to the upside seen at 1.2152 which almost matches the 24th Nov high at 1.2153. AUD/USD reclaimed and extended on gains above 0.6800 to a 0.6839 current high from a 0.6782 intraday low, with the 9th September peak seen at 0.6877. EUR/USD saw no reaction to the modest downward revision in final EZ manufacturing PMI – the pair sustains gains above 1.0400 but waned off its 1.0463 intraday peak, whilst the 28th November high is seen at 1.0496.

CAD

The Loonie stands as the underperformer with no clear reason aside from a breather from the Dollar and crude-induced gains yesterday and in the run-up to the Canadian jobs report tomorrow. USD/CAD resides around its 21 DMA (1.3413) in a 1.3396-3436 current range.

01 Dec 2022 - 09:48- Research Sheet- Source: Newsquawk