EUROPEAN FX UPDATE: Dollar solid, but Yen in recovery mode as other majors wane

Analysis details (10:09)

DXY/JPY

The Greenback continued to grind higher following latest ‘productive’ US debt ceiling talks that kept hopes of a deal alive as the clock ticked down to the wire in terms of cash measures drying up rather than an actual default. The Buck bounced a bit further from recent lows and the Dollar index formed a firmer base on the 103.000 handle between 103.160-440 parameters to probe a Fib retracement level at 103.330, but the Yen managed to keep afloat of 139.00 with some assistance from export offers in Usd/Jpy ahead of the round number and encouraging Japanese preliminary PMIs (manufacturing back above 50.0 and services more expansionary). Indeed, the headline pair retreated from 138.87 to 138.25 even though Treasury yields remained elevated.

AUD/NZD

In contrast to the above, Aussie PMIs were far from flash as manufacturing activity contracted at the same pace as previously and services growth slowed to compound more pronounced weakness in iron ore and the Yuan. Aud/Usd reversed through 0.6650 again, but Aud/Nzd held closer to 1.0600 than 1.0550 as the Kiwi turned defensive ahead of the RBNZ even though expectations tilted hawkishly between a 25 bp or half point hike. In fact, market pricing climbed to circa 37 bp and implied volatility spiked to infer a 50 pip break-even on the event. 

GBP/CHF/CAD/EUR

Sterling was already looking susceptible to a loss of 1.2400+ status vs its US counterpart amidst Eur/Gbp headwinds, but below forecast UK preliminary PMIs were the final straw and offset any positives from the IMF upgrading its 2023 GDP projection to 0.4% growth from 0.3% recession. Elsewhere, the Franc paid more attention to bearish price action in bonds as Usd/Chf gradually climbed to just beyond 0.9000 and away from decent option expiry interest at the 0.8975 strike (1.3 bn), the Loonie extended losses beneath 1.3500 in advance of Canadian PPI and RMP data and the Euro faded within a 1.0820-1.0786 range following mixed Eurozone PMIs showing further divergence in services and manufacturing sectors. 

SCANDI/EM

The Nok underperformed in the absence of anything specific or obvious bar deteriorating technical impulses, but the Huf may have been undermined by Hungarian PM Orban maintaining the nation’s block on EU aid to Ukraine and the 11th sanctions package ahead of the NBH rate call and the Cny/Cnh were rattled by ongoing China-US angst and the loss of chart support.

23 May 2023 - 10:09- Fixed IncomeData- Source: Newsquawk