EUROPEAN FX UPDATE: DXY in the doldrums in a continuation of Friday's price action

DXY: -0.4%, 108.52

• A subdued start to the week thus far with DXY continuing the downward action from Friday and falling further under the 109.00 level to print a current range between 108.43-109.06 (vs Friday's 108.89-109.22 parameter).The next level to the downside looks to be the 2nd Jan low (108.26).


• Focus this week turns to ISM Services, FOMC Minutes, ADP, and NFP, with a pickup in FX liquidity expected as participants return from the Christmas and New Year break.


• The desk at ING suggests that "technical factors signal that the dollar rally at the start of the year is overdone, and the proximity to Donald Trump’s presidential inauguration should prevent a substantial rotation away from defensive dollar longs. Incidentally, January and February are two seasonally strong months for the dollar...Technical factors argue for some correction or at least a loss of momentum for the dollar, but we expect strong buying interest in the dips. Ultimately, the 110.0 target remains very much at reach for DXY in the coming weeks."

EUR: +0.5%, 1.0357

• Firmer amid the broader Dollar weakness and clawing back some of last Thursday's losses, with today's range currently between 1.0296-1.0352 (vs Thursday's best at 1.0372).


• Further support for the EUR was seen after the German state of Hesse reported December CPI at 2.7% Y/Y (prev. 2.0%) - other states due later in the week due to technical reasons. Meanwhile, EZ Services and Composite PMIs were revised marginally higher.


• Political uncertainty looms in Austria, where talks between the two largest centrist parties on forming a government without the far-right Freedom Party collapsed, and far-right leader Kickl is now expected to be tasked with forming a government.


• Elsewhere, a recent poll by FT noted Eurozone economists warned that the ECB has been too slow to cut interest rates to help the economy and 46% of the economists surveyed said the ECB had fallen behind the curve.


• EUR/USD OPEX: 1.0250 (460mln), 1.0275 (734mln), 1.0300 (1.85bln), 1.0320-25 (535mln), 1.0350 (965mln), 1.0380 (961mln), 1.0400 (820mln).

JPY: +0.3%, 157.69

• Weakness in JPY despite the softer Dollar but as a function of higher US yields, with Tokyo traders returning to the markets following their Christmas and New Year break.


• The pair was also unfazed by overnight comments from BoJ Governor Ueda who stated that he plans to increase interest rates with continued economic improvements but added the timing of an adjustment is dependent on the economy and inflation.


• USD/JPY resides in a 157.14-82 current range and eyes last Thursday's peak at 157.84, and then the highs from 30th Dec and 26th Dec at 158.07 and 158.08 respectively.


• USD/JPY OPEX: USD/JPY: 156.00 (1.36bln), 157.50 (210mln), 158.00 (207mln).

GBP: +0.5%, 1.2484

• The top G10 performer this morning amid broader USD weakness alongside potential tailwinds from reports that the percentage of UK businesses planning to raise prices in the coming three months rose to about 55% from 39% as tax increases and higher wage costs caused confidence to slump, according to a survey of 5,000 businesses by the British Chambers of Commerce via FT.


• Current market pricing points to two 25bps BoE rate cuts as it stands, the first fully priced in by May and the second by November.


• GBP/USD resides in a USD 1.2408-1.2491 parameter as it eyes last Thursday's high at 1.2535.

Antipodeans: AUD/USD +0.6%, NZD/USD +0.5%

• Both are firmer amid the broader rise in high-beta FX, with Antipodeans also feeling tailwinds from higher base metals.


• Overnight, Antipodeans benefitted alongside the early strength in CNH after the PBoC continued to set a much stronger-than-expected yuan reference rate setting although the upside was limited and there was a relatively muted reaction to the varied Caixin PMI data.


• AUD/USD trades in a 0.6208-0.6252 range while NZD/USD resides in a 0.5603-5643 parameter.

06 Jan 2025 - 09:50- ForexEU Research- Source: Newsquawk