EUROPEAN FX UPDATE: DXY modestly extends on post-NFP gains and JPY lags on BoJ governor rumours

Analysis details (09:20)

DXY

The Dollar index commences the week in a tight 103.00-25 range after last week’s US jobs report catapulted the DXY, resulting in 101.54-103.01 parameters on Friday. The US data schedule for the week is on the quieter side, but traders gear up for a post-NFP speech from Fed Chair Powell on Tuesday at the Economic Club of Washington, with several other Fed speakers slated to speak as well – “A rate protest after the post-FOMC market reaction may signal the Fed is not as relaxed as it may have sounded last week about loosening financial conditions”, suggests the desk at ING. On that note, Fed’s Daly spoke after the European close on Friday and warned it is too early to talk about what the Fed will do meeting by meeting, going on to say they are prepared to do more and it is far too early to declare victory, or a peak in inflation. Daly also suggested the jobs figure was a “wow” number but the trend is not surprising. For traders, it will be interesting to see if this sentiment is echoed by other officials, particularly Powell. From a technical perspective, upside levels for the DXY include the Jan 12th high at 103.29, the Jan 11th high at 103.48, the psychological 103.50, the 50 DMA at 103.60, and finally the Jan 9th high at 103.86.

JPY

The JPY stands as the G10 laggard thus far with focus arising from reports that Japan’s government has sounded out current Deputy Governor Amamiya about becoming the next BoJ Governor with the government reportedly to present its nominee to parliament next week; Amamiya is seen as more dovish than the other potential candidates and will face the task of normalising the BoJ’s ultra-loose policy, according to the Nikkei. USD/JPY gapped higher to a 132.56 peak from Friday’s 131.17 close, before the pair gave up its gains as Deputy Chief Cabinet Secretary Isozaki later said there was no truth to the report. As far as near-term technicals are concerned, USD/JPY sees its 50 DMA at 132.66 while Friday’s high stands at 131.21.

EUR, GBP

A slight divergence is seen between the GBP and the EUR, with the former underpinned by Brexit-related headway after RTE reported some EU concessions, although the role of the ECJ is seemingly still a sticking point, while an EU source said there would not be an announcement this week. Additionally, Sterling was lifted by BoE’s hawk Mann who suggested that in her view the Bank Rate is still more likely to see another hike than a cut or hold. The EUR meanwhile acknowledged ECB hawk Holzmann warning that the risk of over-tightening policy appears to be dwarfed by the risk of doing too little. EUR/USD remains under its 21 DMA (1.0837) following its post-NFP decline from 1.0939. Analysts at ING posit that “Given the ongoing correction and soft momentum in EUR/USD, support around 1.0730-1.0750 in the pair would already be a welcome development for EUR bulls…We think that any rebound may lose steam around the 1.0870-1.0900 area.”

AUD, NZD, CAD

The non-US Dollars are flat/mixed against the Dollar with the AUD the marginal outperformer of the bunch in the run-up to the RBA policy announcement whereby it is expected to hike its Cash Rate by 25bps, while the RBA’s outlook will be watched following strong Aussie CPI and weak retail sales. AUD/USD sees its 50 DMA at 0.6856. The Kiwi and Loonie meanwhile hold modest downward biases amid the cautious risk mood.

CNH

Hopes for an easing in China-US tensions have dwindled following the US shooting down an air balloon which was alleged to contain spy equipment. China’s Foreign Ministry said it expresses strong dissatisfaction and opposition towards the US use of force to attack the airship. This episode has led to US Secretary of State Blinken postponing his trip to China which was due to commence on Sunday – some sources suggest that Blinken could’ve met with Chinese President Xi during his visit. As far as FX markets are concerned, USD/CNH rose to as much as 6.8300 (vs 6.8055 close on Friday) before reversing back under 6.7850.

06 Feb 2023 - 09:20- ForexData- Source: Newsquawk