EUROPEAN FX UPDATE: Dollar stages late May comeback, with some outside help

Analysis details (10:21)

DXY

Fortunes look more favourable for Buck following Monday’s extension of the bear run, as the index bounces off a higher low to reclaim 101.500+ status amidst a firm rebound in US Treasury yields, partly due to hawkish rhetoric from Fed’s Waller and another ratchet up in oil prices on Russian-related supply factors. Moreover, the Greenback may be benefiting from residual month end rebalancing demand and relative weakness elsewhere in the run up to Consumer Confidence, the Dallas Fed Manufacturing Business Index and Discount Rate Meeting Minutes, with the DXY hovering towards the top of a 101.800-410 range.

CHF/EUR/NZD/JPY/GBP

The major laggards on the final trading day of May, with the Franc around 0.9600 vs its US peer following mixed Swiss data, including trade, retail sales and GDP in advance of a speech from SNB’s Zurburegg that will be monitored for any further signs of a shift from NIRP, while the Euro appears more technically impared sub-1.0750 after touching a key resistance level in the form of the 38.2% Fib retracement from y-t-d peak to trough circa 1.0787 yesterday,l but failing to breach and expose 1.0800. Elsewhere, the Kiwi lost momentum from 0.6550+ on the back of deteriorating NBNZ business outlook and own activity readings plus rather conflicting remarks from RBNZ Assistant Governor Hawkesby who underlined guidance that will likely require the OCR to go beyond neutral, but also warned that higher rates will crimp consumption for some households and added that a recession is well within the realms of possibility. The Yen has rebounded through 128.00 after testing support and underlying bids below a Fib (at 128.27), though has digested contrasting Japanese macro releases and remains vulnerable given the aforementioned UST retreat, and the Pound is still waning beneath 1.2700 and 0.8500 against the Euro with little impetus via BoE consumer credit, mortgage lending of approvals - former beat consensus and latter missed.

AUD/CAD/NOK

Relative G10 outperformers, or at least showing a bit more resilience vs their US rival, with the Aussie gleaning encouragement from not as bad as expected Chinese PMIs instead of divergent domestic data to keep 0.7200 in sight, the Loonie deriving traction from WTI and the Norwegian Crown from Brent as both retain the bulk of their EU embargo on seaborne exports from Russia premium. Usd/Cad is meandering between 1.2685-53 parameters and Eur/Nok is probing 10.1000 with added incentive from the Norges Bank trimming foreign currency purchases to Nok 1.5 bn per day for June vs Nok 2 bn this month.

SEK/EM     

The Swedish Krona is flagging below 10.5000 against the Euro and the Turkish Lira is more worried about the even higher cost of imported oil than content with firmer than anticipated Turkish GDP, while the Hungarian Forint is hoping for a boost from the NBH post-PPI prints showing an acceleration in producer prices that might prompt a bigger than forecast 50 bp hike. Conversely, the Yuan continues to take positives from PBoC and Chinese Cabinet efforts to support the economy as it recovers from latest Covid outbreaks, not to mention the better than expected PMIs noted above.

31 May 2022 - 10:20- Fixed IncomeResearch Sheet- Source: Newsquawk