EUROPEAN FX UPDATE: Dollar on front foot pre-NFP, while Yen and Yuan diverge

Analysis details (10:25)

DXY

The Buck maintained bullish, or recovery momentum awaiting fresh impetus from US labour data, and bolstered by various upbeat jobs proxies in advance of the latest BLS report, like JOLTS, Challenger Lay-offs, ADP and the manufacturing ISM employment sub-components. Moreover, Fed rhetoric largely reiterated the hawkish elements revealed in December’s FOMC policy meeting minutes, bar a more balanced speech by Bullard, and the Dollar index formed a relatively solid base between 105.010-520 bounds ahead of the release amidst an uptick in Treasury yields and pronounced Yen underperformance in stark contrast to the Yuan that was boosted by more Chinese property sector support measures.

JPY    

As noted above, the Yen bore the brunt of renewed Greenback strength and reports that the BoJ sees little need to make further YCC tweaks in haste after conducting more emergency JGB buying operations, this time in 5 and 10 year maturities. Indeed, Usd/Jpy breached resistance near 134.00 on the way through 134.50 and opening scope towards an upside objective on some charts around 134.80.

CAD/CHF/GBP/SEK

The next weakest G10 links, as the Loonie lost its battle to stay above 1.3600 before Canada’s head to head with the US on jobs, while the Franc failed to glean any encouragement from Swiss retail sales showing a slower rate of y/y decline as it strived to defend 0.9400, Sterling lost grip of the 1.1900 handle again even before a more contractionary than forecast UK construction PMI, and the Swedish Crown slipped further on bearish domestic and external (risk) factors. In fact, Eur/Sek topped 11.2500 irrespective of the Euro’s own struggles vs the Buck.

EUR/AUD/NZD

All down against their US counterpart, with the Euro in danger of giving up another big figure in wake of much worse than expected German factory orders, while the Aussie straddled 0.6750 and Kiwi hovered precariously close to 0.6200. However, Aud/Usd was cushioned by Aud/Nzd tailwinds to an extent along with Cny and Cnh gains (latter beyond the 200 DMA at one stage) on the aforementioned targeted stimulus unveiled in China. Back to Eur/Usd, little net reaction to preliminary Eurozone inflation data as HICP missed consensus, but core and super core readings beat.

NOK/EM

The Nok derived some underlying support via resilience in Brent rather than Norwegian manufacturing output turning negative m/m, while the Czk outpaced CEE peers as CNB minutes were hawkish in terms of the vote split and leanings (two votes for a 50 bp hike against unchanged verdict and three others could join the dissenters if prices jump in January).

06 Jan 2023 - 10:25- Fixed IncomeData- Source: Newsquawk