EUROPEAN FX UPDATE: Dovish BoJ sources trim recent JPY gains and provides a boost to JPY pairs

Analysis details (09:20)

DXY

• Off to a strong start to the week, with the index holding above 104.00 for most of the European session after edging higher from a 103.92 APAC low, before seeing a boost from JPY weakness following BoJ sources (more below). Traders however remain cautious ahead of a slew of risk events including US CPI tomorrow before the FOMC on Wednesday, followed by the ECB, BoE and SNB on Thursday – with central bank divergence a key theme for FX traders this week.


• In terms of technicals, the index trades within a 103.92-104.21 European range at the time of writing, with the post-NFP Friday peak seen at 104.27 ahead of the 100 DMA at 104.52 before the 17th of November peak at 104.55. On the downside, the 21 DMA resides at 103.76, then the 200 and 10 DMAs are both seen at 103.55 today before Friday’s low of 103.43.

JPY, CNH

• The JPY is the marked laggard this morning following reports the BoJ is said to see little need to end negative rates in December, according to Bloomberg citing sources. The BoJ reportedly intends to come to a decision based on data up to the last minute, while there lacks proof of sustainable inflation. Sources added the central bank has not yet seen sufficient evidence of wage growth which would support sustainable inflation, and officials view the potential cost of waiting for more data as not very high. These reports poured cold water on recent speculations of a December move and catapulted USD/JPY from 145.53 to session highs of 146.45 for the pair to notch a current intraday range of 144.82-146.45. In terms of technicals, the pair sees its 10 DMA at 146.67, ahead of the 7th December high at 147.31 and then the 100 DMA at 147.35.


• The offshore Yuan is trading with modest losses in early European trade as a function of the Dollar coupled with further deflationary concerns from China which showed a larger-than-expected decline in China’s consumer inflation and factory gate prices which suggests weak domestic demand. USD/CNH found support near its 21 DMA (7.1792) as it trades within a 7.1810-1988 intraday band at the time of writing.

EUR, GBP

• Both are modestly flat/modestly firmer against the Dollar in early trade with the pairs also supported by JPY crosses following the aforementioned BoJ sources via Bloomberg. The EUR and GBP look ahead to their respective central bank decisions on Thursday and thus remain on the sidelines in the run-up to risk events, with impulses expected after the US CPI data tomorrow and the FOMC on Wednesday. More domestically, the UK also tackles a crucial week for UK PM Sunak, who looks ahead to a potential split within the UK government regarding migration policy as braces for a vote on the Rwanda bill and a grilling in the UK COVID inquiry.


• EUR/USD trades within a tight 1.0752-73 band on either side of its 100 DMA (1.0759) and within Friday’s 1.0722-1.0800 range, with the 50 DMA seen to the downside at 1.0708. Option expiries for today include EUR 684mln at 1.0700, EUR 2.2bln between strikes 1.0720-30 with around EUR 500mln between 1.0735-45, and over EUR 750 between 1.0750-60. GBP/USD oscillates on both sides of its 21 DMA (1.2549) and within Friday’s 1.2500-1.2601 parameter.

AUD, NZD, CAD

• The non-US Dollars are also modestly softer but to varying degrees amid the overall cautious mood in markets, whilst the Antipodeans feel some headwinds from Chinese inflation data over the weekend. AUD/USD trades towards the bottom of a 0.6552-83 range and dipped back under its 200 DMA (0.6574), Friday’s low (0.6556), and its 21 DMA (0.6560) as it eyes last Thursday’s 0.6523 low. NZD/USD briefly dipped under last Friday’s low (0.6102) in a 0.6101-32 intraday range. USD/CAD rose above its 100 DMA (1.3586) to trade between 1.3576-3604.

NOK

• Norwegian CPI metrics printed below expectations across the board with the core Y/Y at 5.8% vs exp. 6.0% and vs Norges Bank forecast of 6.1. On balance, core-CPI coming in below the Norges Bank forecasts alongside global dovish rate pricing, the Regional network being soft on growth and unchanged on wage expectations in addition to a reduction in crude benchmarks means the Norges Bank is likely to keep rates unchanged this week - despite guiding that a December hike was "likely" during the November meeting. Albeit, modest NOK pressure since the last outing and the uptick in headline CPI from the prior mean the repo path could imply some probability of further tightening and that a hike cannot be entirely ruled out for the December gathering.

11 Dec 2023 - 09:20- Research Sheet- Source: Newsquawk