EUROPEAN FX UPDATE: DXY continues to gain as JPY remains on the back foot and AUD slumps post-RBA

Analysis details (09:45)

DXY

• So far, a session of firm gains for the Dollar and index amid the broader risk aversion across the market coupled with continued weakness in the JPY against major peers.


• DXY has mounted 102.00 from a 101.94 base to a current intraday peak around 102.14, with technicians eyeing the 100 DMA (102.38), then the 50 DMA (102.48) ahead of the July 10th high at 102.56.


• The Fed’s Senior Loan Officer Opinion Survey (SLOOS) signalled further tightening in US lending with businesses and households warier about taking on more debt.


• Ahead, participants will be on the lookout for the US manufacturing PMIs from S&P Global and the ISM, which will give an occasion to put the soft-landing narrative to the test, according to ING. The bank however puts more weight on the JOLTS jobs openings to move market sentiment today (in the absence of other drivers) – risks later in the week include the US jobs data on Friday.


• Analysts at ING also suggest “The greenback probably needs some compelling evidence against the soft-landing narrative in the coming days to break lower.”

AUD, NZD, CAD

• Antipodeans remain the marked laggards amid a combination of subdued risk and RBA opting to pause.


• The RBA maintained its Cash Rate Target unchanged at 4.10% (vs split views between 25bps hike and unchanged) and noted that some further tightening of monetary policy may be required.


• The RBA reiterated that the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that, while it also reaffirmed a priority to return inflation to target within a reasonable timeframe and expects inflation will be back at 2-3% target range in late 2025.


• AUD/USD slumped from a 0.6723 intraday high, through its 50 and 100 DMAs (at 0.6699 and 0.6691 respectively) to a 0.6638 low – totally reversing yesterday’s China-induced gains and dipping under yesterday’s 0.6640 trough ahead of the Friday low at 0.6620.


• NZD/USD is softer in sympathy and fell from levels near its 200 DMA (0.6223), through its 100 DMA (0.6198) to test its 50 DMA (0.6164) at the time of writing. The AUD/NZD cross relinquished its 1.0800 handle and fell to a 1.0757 intraday low from a 1.0828 peak.


• CAD sees tailwinds from broader risk and risk-driven losses in oil. USD/CAD moved back above its 21 DMA (1.3216) from a 1.3181 low and eyes yesterday’s 1.3261 high.

JPY

• Traditional havens are also on the back foot against the Dollar but to a lesser extent vs the non-US dollar counterparts. JPY continues to feel headwinds following the BoJ policy decision and subsequent off-schedule bond purchases conducted yesterday.


• USD/JPY and JPY-pairs remain on a modestly firmer footing, with the broader risk sentiment capping upside. USD/JPY trades towards the top of a 142.19-84 range, albeit off best levels at the time of writing. EUR/JPY has pulled back towards the middle of a 156.39-157.04 intraday range, with a similar story for GBP/JPY which resides in a 182.56-183.20 parameter thus far.


• Options expiries for USD/JPY see USD 1.7bln at strike 142.00 alongside USD 711mln at 142.50.

EUR, GBP

• EUR and GBP are subdued against the Dollar with little initial reaction seen to the final release of the S&P Manufacturing PMIs.


• Final Manufacturing PMIs from Europe underscored increasing risks of recession, although prices have been moving favourably amid sharply deteriorating demand. The EZ release suggested “The European Central Bank will be pleased to see that deflation of output prices has picked up speed again, falling at the most rapid pace in almost 14 years. However, the worries about services inflation remain high on the agenda.”


• EUR/USD sits in a 1.0968-1.1003 range with technicians keeping an eye on the 50 and 100 DMAs to the downside (at 1.0920 and 1.0908 respectively), whilst to the upside, the 21 DMA sits at 1.1058.


• EUR/USD sees several large option expiries for today’s NY cut including EUR 1.1bln between 1.1000-10, EUR 2.5bln between 1.1030-40, EUR 2.9bln between 1.1045-55, and EUR 2bln at 1.1100.


• GBP/USD holds onto 1.2800 in a 1.2814-41 with little reaction seen to the slight revision higher in UK Manufacturing PMI.

01 Aug 2023 - 09:49- ForexEU Research- Source: Newsquawk