EUROPEAN FX UPDATE: DXY reverses earlier gains as EUR rebounds post-PMI

Analysis details (09:40)

DXY

A firm start to the session was met with a reversal, with DXY initially extending above 109.00 from a 108.85 APAC base to a 109.27 high - a whisker away from the current YTD peak at 109.29 set on July 14th. However, the upside then reversed amid the EUR rebound following the release of the German Flash PMIs (more below). The Index was pushed to a modest new session low of 108.83 but resides well within yesterday’s 108.08-109.10 range. In terms of upside levels, resistance could be met at the September 22nd 2002 high at 109.67 ahead of the June 23rd 2002 peak at 111.13. Ahead, US Flash PMIs will offer some anecdotal hints as to the health of the US economy in August ahead of the official releases and in the run-up to the Jackson Hole Symposium kicking off on Thursday.

EUR

The single currency has been the focal point of the morning after EUR/USD trundled lower from a 0.9950 intraday high to test 0.9900 to the downside, before rebounding on the German Flash PMIs. The German metrics were received better than the pessimistic French release but warned that “with the threat of an energy crisis still looming large, the outlook remains riddled with uncertainty”, which also comes against the backdrop of record high German power prices. Thereafter, the mixed EZ release capped any further upside at the time as accompanying commentary suggested: “The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year". Desks have also been warning about the potential readjustment of Asian central bank reserves, which could include selling EUR/USD (and possibly JPY) after USD-denominated interventions to stem the rout in domestic currencies. From a technical standpoint, analysts have been flagging the next major support around the 0.9600 and 0.9500 area, but before that, some mild support at 0.9859 Dec 2nd 2002. Ahead, ECB’s Panetta is slated for 12:00BST and may be eyed for any explicit commentary on the currency.

AUD, NZD, CAD, GBP

All firmer to varying degrees against the USD, with activity currencies piggy-backing the turnaround in sentiment and the pullback in the Dollar. AUD/USD rebounded from 0.6854 back towards its current 0.6899 high ahead of the 50 DMA at 0.6917. Similarly, NZD/USD eyes 0.6200 from a 0.6160 intraday low, with the 50 and 21 DMAs at 0.6254 and 0.6290, but before that, yesterday’s peak stands at 0.6215. The Loonie also benefits from the firmer oil prices with USD/CAD retesting 1.3000  to the downside from a 1.3063 high. GBP moved in tandem with the Dollar throughout the morning, with little reaction seen to mixed PMIs – which saw a surprise contraction in the manufacturing sector, whilst the survey also pointed to a further easing in inflationary pressures. GBP/USD resides around the middle of a 1.1718-85 parameter. 

JPY, CNH

The JPY has remained in the green vs the USD throughout the European session thus far as the earlier soured sentiment improved and the Dollar pulled back from near-YTD highs. USD/JPY meanders just above 137.00 (vs high 137.71). Finally, USD/CNH remained at near-2yr highs overnight around 6.8800 before pulling back to under 6.8700, in tandem with the Dollar.

23 Aug 2022 - 09:40- Research Sheet- Source: Newsquawk