EUROPEAN FX UPDATE: DXY leads the gains and traditional havens lag in summer conditions ahead of Thursday’s US CPI

Analysis details (09:40)

DXY

• A firm start to the week for the broader Dollar and index following Friday’s post-NFP selloff which, at the time, was attributed to unwind of the acute bond selloff earlier last week – “Recall that the sharp sell-off at the long end of the curve had upset benign market conditions on Wednesday and Thursday last week”, says the desk at ING.


• Over the weekend, Fed’s Bowman (voter) suggested more US rate hikes will likely be needed and that they should remain willing to raise the federal funds rate at a future meeting if incoming data indicate progress on inflation has stalled – DXY saw little impact at the open. Fed speakers slated for later today include Bostic (2024 voter) and another appearance from voter Bowman.


• DXY overnight was supported by the risk aversion which reverberated into the APAC region, whilst participants eye this week’s risks events headlined by US CPI on Thursday, whilst desks also flag a risk of dealers building concessions into bond prices ahead of this week’s US Treasury auctions – keeping US yields firm.


• Analysts are also keeping an eye on the recent developments regarding food and energy prices, and what it could mean for the recent disinflation trend.


• From a technical standpoint, the DXY is sandwiched between its 100 and 50 DMAs to the upside (at 102.31 and 102.34 respectively) and the 10 DMA to the downside (101.88), with the index still well within Friday’s 101.73-102.62 parameters, and last Thursday’s peak at 102.84.

AUD, NZD, CAD

• The antipodeans narrowly outperform as risk tilts slightly more constructive in Europe, with the Aussie and Kiwi taking the opportunity to nurse some of last week’s losses.


• AUD/USD remains within Friday’s 0.6540-66099 range and some way off last week’s 0.6739 best, with support touted at last week’s 0.6514 low then the May 31st trend low at 0.6459. NZD/USD sees a similar story and hovers on either side of the 0.6100 market, with Friday’s parameter between 0.6068-6133, and above that the 50 DMA DMA at 0.6166 then the 100 DMA at 0.6192. USD/CAD is flat within a tight range 1.3363-87 range.


• Some analysts attributed the AUD outperformance overnight to buyers in AUD/JPY as the cross found support near 93.00 for the last three sessions.


• Aussie and Kiwi traders will be eyeing the Chinese trade data on Tuesday followed by Chinese inflation data on Wednesday.

EUR, GBP

• Subdued trade is seen across the major European currencies in a continuation of the heavy overnight tone seen for both EUR/USD and GBP/USD amidst the Dollar action and a lack of catalysts, with EUR unreactive to a better-than-expected EZ Sentix Index release.


• In terms of technicals, EUR/USD fell back under 1.1000 from a 1.1017 intraday high, and notched a current low at 1.0971, but the pair remains well within Friday’s 1.0933-1041 parameter, whilst desks also flagging that the 100 DMA (1.0921 today) proved to be formidable support for EUR/USD in recent sessions. EUR/USD OpEx today includes EUR 751mln between 1.0920-25 and EUR 1.6bln between 1.0940-50.


• GBP/USD trades on either side of its 50 DMA (1.2742) in a current range of 1.2714-61, again within Friday’s 1.2687-2792 band, with the post-BoE low on Thursday potential support at 1.2620. EUR/GBP sits in a relatively tight 0.8623-40 range thus far. EUR/GBP OpEx today includes EUR 1.3bln at strike 0.8550 and EUR 1bln between 0.8610-20.


• Ahead, participants will be eyeing commentary from BoE’s Chief Economist Pill spoke on Friday (post-BoE) and warned that there is a greater risk that inflation will persist in the UK.

JPY

• JPY seeing the deepest losses among G10s as the broader risk sentiment becomes more constructive while the timelier BoJ Summary of Opinions of the July meeting overnight maintained the BoJ’s dovish stance despite the back-door YCC tweak two weeks ago.


• BoJ Summary of Opinions from the July meeting stated the Bank needs to patiently continue with monetary easing toward achieving the price stability target and to achieve the price stability target of 2% sustainably and stably. Meanwhile, it was stated that given that there are increasingly significant upside and downside risks to the outlook for prices, it is appropriate for the Bank to conduct yield curve control with greater flexibility to respond to these risks.


• Looking at technicals, USD/JPY found support around Friday’s 141.54 low before reclaiming 142+ status, with a current high at 142.36 – with Friday’s 142.88 peak the next point of resistance before 143.00. On the downside, the 50 DMA resides at 141.30, then the 21 DMA at 140.70 and the 31st

07 Aug 2023 - 09:40- Research Sheet- Source: Newsquawk