EUROPEAN FX UPDATE: DXY declines as attention turns to Chair Powell whilst EUR eyes Flash EZ CPI beforehand

Analysis details (09:30)

DXY

The Dollar index is under pressure in early European hours after failing to top 107.00 overnight, having printed an APAC peak of 106.90 – matching the Tuesday high - before trundling lower to levels just under 106.40, but the index remains north of yesterday’s 106.05 low and above the current weekly trough of 105.31. The DXY lifted off session lows alongside the entrance of European players but thereafter downside pressure emerged as the risk tone improved and with participants gearing up for the US ADP release, but more importantly, a speech by Fed Chair Powell on the economic outlook, inflation and the labour market. From a technical perspective, traders will be cognizant of the 200 DMA in the index at 105.48 on Wednesday, after finding support at the moving average on Monday, while month-end models point to mild Dollar selling. 

NZD, AUD, CAD

All firmer against the Dollar but to varying degrees. Antipodeans lead the charge amid the positive risk move and despite the softer-than-expected Aussie CPI overnight and weak PMIs from China. Some participants flag short covering as concerns surrounding China fade as vaccinations in the nation have been boosted for the elderly while COVID policy is fine-tuned. The newly introduced monthly Australian CPI metrics saw the headline Y/Y at 6.9% in October (exp. 7.4%), with the trimmed metrics also printing sub-forecasts – in turn strengthening the case for the RBA to pause after the December meeting. AUD/USD trades on either side of 0.6700 with the current daily range between 0.6671-0.6732 and the 100 DMA at 0.6685. NZD/USD reclaimed a 0.6200 handle from a 0.6190 intraday low with levels to the upside including the 200 DMA at 0.6290 on Wednesday; the 200 DMA acted as resistance on 24th November. USD/CAD sees slightly more muted price action despite the upside in crude and losses in the USD with the pair on either side of its 50 DMA at 1.3578 after printing a wide 1.3407-1.3645 parameter on Tuesday.

EUR, GBP

The EUR narrowly outperforms GBP at the time of writing as traders look towards the Flash EZ CPI release at 10:00GMT/05:00EST for direction in the run-up to the ECB confab on 15th Dec. In terms of regional releases thus far, the Spanish and German headline metrics printed below forecasts yesterday (albeit Spanish core CPI accelerated), whilst French inflation printed in line. “Our economics team remains sceptical that this is the series' peak, and we expect inflation to accelerate again in December”, posits the desk at ING, as markets gear up for a lower reading in the EZ-wide metrics following the regionals. ECB market pricing remains nearly evenly split (at the time of writing) for a 50bps or 75bps move next month. From a technical standpoint, EUR/USD sees its 200 DMA at 1.0372, whilst IFR notes of sellers tipped ahead of 1.0450 and 1.0500. The pair also sees large option expiries for today’s NY cut with EUR 705mln between 1.0340-50 and EUR 1.11bln between 1.0370-80. GBP/USD also gleans support from the Dollar decline while BoE’s Chief Economist Pill offered little in terms of fresh commentary. GBP/USD reclaimed 1.2000+ status from a 1.1938 base with yesterday’s high at 1.2064, then Monday’s peak thereafter at 1.2118 ahead of the 200 DMA at 1.2158. 

JPY, CNH, HKD

The JPY sits as the G10 laggard with USD/JPY uneventful in a relatively tight 138.34-94 range. CNH is firm against the softer Dollar with USD/CNH below 7.1000 from a 7.1600 overnight peak despite disappointing Chinese PMI data which slipped into a deeper contraction and printed sub-forecast, meanwhile, the HKD strengthened past the midpoint of the 7.75-7.85 USD/HKD trading band in early European hours. 

30 Nov 2022 - 09:30- Research Sheet- Source: Newsquawk