EUROPEAN FX UPDATE: Dollar wanes back under 102.50 but price action across G10s remain caged in quiet trade

Analysis details (09:54)

DXY

• A softer session thus far for the broader Dollar and index in quiet summer trade and following yesterday’s risk-driven gains which took the index to 102.80 from a 102.07 base. ING suggests “The dollar had found substantial demand at the start of this week, but the prevalence of temporary drivers while Fed-related pricing has been put on hold ahead of key data releases continues to prevent a sustainable dislocation from recent ranges.”


• Another factor for the softer buck could’ve been the solid 3yr Treasury Note auction yesterday which saw a slightly lower yield than trading pre-auction – in turn abating some demand concerns. Focus for the Dollar (aside from broader risk) will likely be the 10yr note auction in the absence of tier 1 data or notable scheduled central bank speakers.


• From a technical standpoint, DXY currently sits toward the bottom end of a tight 102.31-56 band after trading on either side of 102.50 overnight before conforming to levels below the half-round figure. The index trades just above its 50 DMA (102.27) and 100 DMA (102.30), with the next downside levels yesterday’s low (102.07), Monday’s low (101.96), and last Friday’s trough (101.73). To the upside, resistance may be seen at yesterday’s high (102.80), last Thursday’s high (102.84), the 7th July high (103.19), and the 5th July peak (103.39).

YUAN, JPY

• The Yuan was in focus overnight following the Chinese inflation data further underscored (following the trade data on Tuesday) weak domestic demand with the expected post-COVID rebound in consumer spending failing to materialise. Analysts have suggested that the data further fuels calls for more government support measures, particularly given the weaker trade data earlier this week, and further tensions within the property sector. Some have touted possible rate and RRR cuts later this year. (Full Newsquawk Analysis available here).


• CNH saw strength post-release and extended on gains amid reports China's major state-owned banks are seen selling dollars to buy yuan in the onshore spot FX market. The initial strength however could’ve (in part) emanated from the inflation metrics as CPI Y/Y actually printed slightly above expectations while core CPI Y/Y rose +0.8% (vs prev. 0.4%). USD/CNH has trimmed a large part of yesterday’s 7.1994-7.2511 move, with the pair today falling from 7.2441 to a current low of 7.2060. Downside levels for the pair include the 50 DMA (7.1850) and 21 DMA 7.1799).


• The Yen meanwhile is relatively flat against the Buck and trades within a tight 143.01-143.40 intraday parameter, within yesterday’s 142.39-143.49 range, with the next upside level above yesterday’s high the 3rd August peak (143.89). Downside levels include Monday’s low (141.51) and thereafter the 50 DMA (141.46). Today’s NY cut sees several large USD/JPY clips including USD 1.5bln at 142.00, USD 1bln between 142.35-45, USD 1.8bln at 142.75, and USD 2.2bln at strike 143.00.

NZD, AUD, CAD

• The Antipodeans are the modest outperformers this morning following a week of hefty losses thus far, with the pullback in the Dollar, mild rebound in commodities, and broader risk mood underpinning the AUD and NZD. Conversely, the CAD trades flat despite a rebound in commodity currencies elsewhere.


• AUD/USD trades toward the top of a 0.6529-71 range, eyeing yesterday’s high (0.6576), thereafter Monday’s high (0.6593), and then last Friday’s peak at 0.6609. On the downside, support may be seen at yesterday’s trough (0.6570), then the 1st June ow (0.6483) and the YTD low at 0.6456.


• NZD/USD remains within yesterday’s 0.6032-6111 range with a current parameter between 0.6047-94. Below yesterday’s low, support may come from the 1st June low (0.5989) ahead of the YTD trough at 0.5983. USD/CAD meanwhile sits in a tight 1.3405-31 range vs yesterday’s much-wider 1.3362-1.3501 parameter.

EUR, GBP

• Both modestly firmer as a function of the Dollar and with news flow in Europe on the quieter side. EUR narrowly outperforms the GBP, with the single currency possibly underpinned by reports the Italian government has acted to limit the impact of the surprise windfall tax on banks after the region was spooked yesterday.


• EUR/USD found support near its 50 DMA (1.0951) but remains caged in a 1.0953-88 range, within yesterday’s 1.0929-1011 intraday parameter. The next levels to the upside include the 7th August high (1.1017), then the 4th August peak at 1.1042. To the downside, support may be seen at the 50 DMA (1.0925) and thereafter the 3rd August low (1.0912). GBP/USD is flat in a 1.2737-81 range with resistance seen in the 1.2785-90 region which marks the highs from the last three sessions, and above that, the 2nd August peak sits at 1.2805.

09 Aug 2023 - 09:58- Research Sheet- Source: Newsquawk