EUROPEAN FX UPDATE: DXY gives back some of Monday’s gains pre-CPI while Sterling slips after softer wages

Analysis details (09:52)

DXY

• The index trades on either side of the 104.00 mark but with a softer bias in the run-up to the US CPI metrics whereby the annual rate of headline CPI is expected to ease, the core is seen unchanged. Consensus expects US headline CPI to be unchanged M/M in November (matching the prior rate), while the annual rate of headline inflation is expected to ease to 3.0% Y/Y from the 3.1% in October. November's Core CPI is seen rising +0.3% M/M, a little quicker than the +0.2% registered in October, while the annual rate of core inflation is seen unchanged at 4.0% Y/Y. The data comes a day ahead of the FOMC policy announcement (unchanged expected), and while it is unlikely to shift the dial for December, it may help shape expectations about future Fed policy easing, with market expectations looking for 115bps of rate cuts in 2024 (four fully priced 25bps rate cuts, with a decent chance of a fifth).


• In terms of technicals, the index resides within a relatively tight 103.82-104.08 parameter (vs yesterday’s 103.92-104.26) and is still above its 21 DMA (103.68) and 200 DMA (103.54) ahead of Friday’s low (103.43). To the upside, the 104.26-27 area marks a double-top consisting of the highs from Monday and last Friday respectively, with the 100 DMA (104.55) above that.

EUR, GBP

• Sterling fails to benefit from the Dollar's softness in the wake of the softer-than-expected wage metrics for October ahead of the BoE confab on Thursday. To recap the UK jobs metrics, The UK claimant count rose 16.0k in November (exp. 15.0k, prev. 8.9k), while 12k were shed from the HMRC payrolls in the month (prev. +33k). The ILO unemployment rate was unchanged at 4.2% in October, in line with expectations. UK average weekly earnings rose by a rate of 7.2% 3m/YY in October (exp. +7.7%, prev. +8.0%), while the ex-bonus measure rose 7.3% (exp. 7.4%, prev. 7.8%). Analysts at Capital Economics said, "the sharp fall in wage growth in October will probably further fuel investors’ expectations that interest rates could be cut as soon as the middle of next year, and leaves our forecast for rate cuts to start late in 2024 looking a bit more challenging." GBP/USD found resistance just under yesterday’s 1.2590 high at 1.2584 before trickling lower to levels under 1.2550 as yesterday’s low (1.2528) comes into view ahead of Friday’s low (1.2500), the 200 DMA (1.2490) and the 100 DMA (1.2456).


• EUR/USD gains amid the weaker Dollar coupled with EUR/GBP flows whilst the firmer-than-expected ZEW metrics from Germany did little to impact price action following the recent downbeat Factory Orders/Industrial Output data from the region. The focus for EUR traders nonetheless remains on US CPI. EUR/USD found support near its 100 DMA (1.0758) and rose above yesterday’s 1.0778 peak as it eyes Friday’s high (1.0800) ahead of the 200 DMA (1.0823). Downside levels include yesterday’s low (1.0740), Friday’s low (1.0722) and the 50 DMA (1.0715). EUR/USD also eyes option expiries at the NY cut with several modestly sized clipped scattered near current levels, 1.0725-30 (EUR 743mln), 1.0750 (EUR 872mln), 1.0785-90 (EUR 306mln), 1.0800-10 (EUR 682mln), 1.0830-40 (EUR 975mln). EUR/GBP meanwhile topped yesterday’s high (0.8588) and the 10 DMA (0.8585) as it eyes 0.8600 to the upside ahead of the 1st December peak (0.8634), the 100 DMA (0.8635), 50 DMA (0.8665) and 50 DMA (0.8670).

JPY

• The Yen is the top G10 gainer at the time of writing following yesterday’s hefty losses in the wake of the BoJ sources which suggested the bank sees little need to end negative rates in December. The JPY is taking advantage of the softer pre-US CPI Dollar and the fall in bond yields. More domestically, it’s worth noting Japanese PM Kishia is poised to make an announcement tomorrow around 18:15 local time, potentially to announce a cabinet reshuffle with Kyodo sources overnight noting “Japanese Prime Minister Fumio Kishida is set to replace four ministers, including the top government spokesman, as early as Thursday over their alleged involvement in a political fundraising scandal centring on the ruling party's largest faction”.


• USD/JPY trades within a 145.21-146.18 range and yesterday’s 144.79-146.58 parameters with other nearby levels to the downside sparse aside from Friday’s low (142.49) before the 200 DMA (142.42). On the upside, the pair sees its 10 DMA (146.45), 100 DMA (147.56), 21 DMA (148.00) and 50 DMA (149.13). EUR/JPY fell back under 157.00 to trade in a 156.49-157.34 range (vs yesterday’s 155.89-157.68 range). GBP/USD remains under its 50 DMA (184.27) and 100 DMA (183.77) after slipping under the levels yesterday to trade within a 183.57-182.47 range today.

AUD, NZD

• The Antipodeans trade firmer following yesterday’s rebound from the weakness emanating from the Chinese deflation data over the weekend coupled with firmer base metal prices, whilst RBA Governor Bullock said she does not think the RBA is falling behind on the inflation fight, and added that the central bank is taking a cautious approach and continue to watch data. AUD/USD rose from a 0.6564 base, above its 21 DMA (0.6571), 200 DMA (0.6574) and 10 DMA (0.6595) ahead of a double top at 0.6619 – marking the highs from the 7th and 8th of December. NZD/USD eyes last Thursday’s 0.6174 high as it trades within a 0.6116-63 parameter today.

12 Dec 2023 - 10:06- Research Sheet- Source: Newsquawk