EUROPEAN FX UPDATE: Dollar wanes and props up G10s; Aussie leads the charge and the Yen falls behind

Analysis details (09:18)

DXY

The index has pulled back further from Friday’s post-NFP 106.93 high after market bets on Friday tilted more towards a 75bps September hike by the FOMC, whilst Fed’s Daly and Bowman kept options open over the weekend. Participants are looking ahead to this week’s highlight - the US CPI metrics - headline CPI is expected to rise 0.2% M/M in July, easing from the 1.3% monthly pace printed in June; core inflation, however, is expected to continue ticking higher. If the core metrics surprise to the downside, many will dust off arguments that core consumer prices have peaked, which could help the Fed move to a lower increment of rate hikes at the September FOMC. From a technical standpoint, the DXY sees its 10 DMA at 106.25 (matching the current intraday low) ahead of the 106.00 psychological mark, whilst upside levels include the 21 DMA at 106.87 ahead of Friday’s best.

AUD, NZD, CAD

Non-Dollar G10s are gaining momentum against peers, and vs the Buck, as risk appetite remains firm across stocks and commodities, whilst the Dollar index edges towards session lows. The Aussie leads the charge with help from firm iron ore prices and a wider-than-expected July trade surplus in China, although import growth missed forecast but improved from June. AUD/USD found support near its 21 DMA (0.6896) before taking out its 50 DMA (0.6948) and then its 10 DMA (0.6962). The NZD remains firm but to a lesser extent than its antipodean counterpart with Kiwi Q3 inflation expectations being downgraded for both the 1yr and 2yr-ahead metrics. Thus, AUD/NZD has topped 1.1100 to the upside from a 1.1062 intraday base, whilst NZD/USD rebounds from its 21 DMA (0.62270) and eyes its 10 and 50 DMAs at 0.6272 and 0.6281 respectively. The CAD retraces some of Friday’s jobs and crude-led losses – USD/CAD has dipped back under 1.2900 from Friday’s 1.2984 best.

EUR, GBP

Sterling has also seen early gains despite a lack of pertinent newsflow alongside its high-beta peers – GBP/USD found overnight support not far off its 21 DMA (1.2034) at 1.2048, with upside levels including the 10 DMA (1.2142), 50 DMA and Friday’s high (both at 1.2168). Elsewhere, EUR/USD is lifted by the aforementioned Dollar weakness, with little in the docket for the single currency aside from the EZ Aug Sentix Index. EUR/USD has reclaimed a 1.0200+ handle (vs a 1.0160 base), with the Thursday and Friday highs both around 1.2050 at 1.0253 and 1.0252.

JPY

The Yen is the current G10 laggard amid broader risk and as the FOMC-BOJ pricing once again widens following Friday’s blockbuster US jobs report. USD/JPY trades on either side of 135.00 in the early European hours, with the pair capped by the current USD weakness. From a technical standpoint, USD/JPY sees its 21 DMA at 136.01, but before that, 135.91 is cited as the 61.8% Fib of the July-August fall.

08 Aug 2022 - 09:17- Research Sheet- Source: Newsquawk