EUROPEAN FX UPDATE: Dollar despondent pre-NFP whilst Aussie and Yuan cheers Chinese rumours

Analysis details (09:35)

DXY

The index pulled back overnight as risk sentiment was on the front foot, with the DXY dipping under 112.50 from yesterday’s 113.15 peak as participants are now gearing up for the US jobs report which will be an hour early in Europe amid the four-hour differential between London and New York this week. Markets are looking for 200k in the headline NFP; note, it was reported that the White House Press Secretary is expecting job gains of 150k in the coming months. In early European hours, the DXY found some mild and brief support around the 112.50 mark, whilst technicians flag the 21 DMA (112.106) ahead of yesterday’s 111.81 trough.

AUD, NZD, CNH

Antipodeans outperform on the back of a surge in base metal prices amid further COVID reopening rumours, as APAC sentiment was boosted by unverified rumours overnight regarding China reopening sooner with China's CDC said to be working on a reopening path - China's Health Authorities are to hold a presser on targeted COVID prevention on November 5th at 15:00 local time (07:00GMT). A former Chinese government expert told a conference that many new COVID policies will be introduced over the next 5-6 months, and added a "substantive change" to COVID policy is coming soon. Furthermore, Bloomberg sources reported that China is working on a plan to scrap COVID flight suspensions, although this was later downplayed by the Chinese Foreign Ministry, which suggested the nation’s COVID policies are consistent and clear. AUD/USD topped its 21 DMA (0.6337) after climbing from a 0.6286 intraday base with the pair now eyeing its 10 DMA (0.6384) to the upside. NZD/USD took out resistance at the 50 DMA (0.5829) during the European session after finding a printing base at 0.5758. The Yuan was in focus overnight with the PBoC setting a firmer-than-expected Yuan midpoint (USD/CNY mid-point at 7.2555 vs exp. 7.2683 (prev. 7.2472)), whilst strength was derived from the aforementioned Chinese COVID updates. USD/CNH found support at its 21 DMA (7.2443) after declining from a 7.3391 intraday peak.

EUR, GBP

Both European currencies are firmer as the Dollar remains despondent this morning. EUR/USD however remains under 0.9800 in a 0.9743-95 range whilst the EZ PMI metrics were revised higher but remained in contraction territory and the accompanying commentary suggested “After a weak third quarter of PMI and official GDP data, the latest survey results for the start of the fourth quarter suggest the eurozone economy is now headed for a winter recession.”. Meanwhile, the pair sees several large options expire for today’s NY cut – with the closest to the money being EUR 1.6bln between 0.9790-0.9800. Sterling resides as one of the outperformers following yesterday’s BoE-induced underperformance and a rise across high-betas overnight. BoE’s Chief Economist Pill and BoE’s Mann both stuck to the script from yesterday’s BoE. GBP/USD is back on a 1.1200 handle after yesterday’s decline from a 1.1421 high to a 1.1149 trough, with technicians today keeping an eye on the 21 and 50 DMAs at 1.305 and 1.1334 respectively, alongside psychological levels.

JPY

The JPY also benefits from the Dollar pullback, but to a lesser extent than peers following yesterday’s relative outperformance. USD/JPY was choppy around 148.00 amid the familiar FX-related rhetoric by Japanese Finance Minister Suzuki who also noted there was no intention to guide FX rates to certain levels by intervening in the market. The pair resides on either side of its 21 and 10 DMAs (both at 147.78) in a 147.55-148.40 range as the clock ticks down to the US NFPs. Note, USD/JPY sees USD 1.05bln in opex rolling off at strike 147.00 at today’s NY cut. 

04 Nov 2022 - 09:35- Research Sheet- Source: Newsquawk