EUROPEAN FX UPDATE: DXY’s contained while high-beta FX outperform and EUR remains subdued

DXY

• A choppy European morning thus far within confined ranges on either side of 104.00 between 103.88-104.05 as macro newsflow this morning remains light ahead of more US data, today in the form of the monthly ADP – which are viewed as an unreliable preview for Friday’s NFP data. Q3 unit labour costs and productivity data will also be eyed after October’s JOLTs data surprised to the downside, which contributed to a dovish market reaction. The US international trade stats for October and weekly US MBA mortgage applications data will also be out in the premarket. As a reminder, the Fed remains in its blackout period ahead of the December 12-13th confab.


• In terms of technicals, DXY moved back above its 21 DMA (104.02) after finding an APAC floor at 103.88, with the index now eyeing yesterday’s 104.09 high ahead of the 22nd Nov peak (104.21) and then the 100 DMA (104.44). Downside levels include the 200 DMA (103.56) and yesterday’s 103.53 low.


• Analysts at ING “suspect markets are holding a more cautious stance as we head into the key US payroll figures on Friday and the Fed meeting next week, where there is a good probability the FOMC will deliver a protest against rate cut bets – especially if data fails to turn lower. When adding the soft idiosyncratic momentum faced by the euro, we remain modestly bullish on the dollar into the FOMC.”

AUD, NZD, CAD

• The non-US Dollars are all firmer amid the broader upbeat risk sentiment and rebound in base metals, following yesterday’s session of losses, with the Aussie and Kiwi the top performers and the Loonie posting shallower gains ahead of the BoC Policy Announcement.


• The BoC decision is a statement-only affair and the BoC is widely expected to keep rates on hold at 5.00%. Attention will be paid to the statement to see if there are any tweaks after the recent softening in the growth and inflation data. The October statement noted that the "Governing Council is concerned that progress towards price stability is slow and inflationary risks have increased and is prepared to raise the policy rate further if needed". Analysts at RBC note the BoC will remain mindful of inflationary risks and retain the option to move the interest rate higher, but they do not see that as likely to be necessary with easing inflation and slowing growth.


• In terms of technicals, AUD/USD trades on either side of its 200 DMA (0.6577) between its 21 DMA (0.6533) and 10 DMA (0.6604) and within yesterday’s 0.6542-6625 parameter following the RBA hangover. NZD/USD found support near its 10 DMA (0.6131) and briefly topped yesterday’s 0.6174 peak, but there is still a way to go until Monday’s 0.6222 high. USD/CAD trades on either side of 100 DMA ( 1.3573) in a 1.3557-94  intraday parameter.

JPY

• Relatively contained trade for the Yen amid minimal action in the Dollar and with the bond complex also stable, with desks also noting little interest from Japanese import and exporters overnight. The APAC session also saw commentary (but little JPY movement) from BoJ Deputy Governor Himino, who suggested the central bank does not have a present schedule in mind on exit from easy policy, whilst adding that it may take more than a year for the effect of monetary policy to completely appear in the economy which is why we are patiently maintaining easy policy.


• Technicians will note that USD/JPY found intraday resistance at its 200 DMA (147.39) once again after hitting a wall at the DMA yesterday. Upside levels thereafter include the 4th Dec high at 147.48 ahead of 148.00. Nearby downside levels include yesterday’s low at 146.54, then 146.31 (38.2% Fibo of the 137.25 to 151.92 Jul to Nov rise) and Monday’s trough at 146.21. In terms of notable OpEx, the pair eyes USD 1.2bln between strikes 147.20-25.

GBP, EUR

• Mixed trade among the European majors, with Sterling feeling some tailwinds from its high-beta properties alongside modest outperformance in UK yields as UK bonds retrace some yesterday’s upside driven by US data, whilst desks are also monitoring any divergence in dovish expectations between the BoE vs the ECB and Fed. The EUR remains subdued following a sizeable miss in German Industrial orders (-3.7% vs. Exp. 0.2%) and as more ECB hawks are coming out with less hawkish undertones, with ECB’s Kazaks today suggesting rate cuts in H1 are not needed at the moment, but a change in the situation could lead to another outcome. These comments follow ECB’s Schnabel yesterday who suggested that the current level of restriction is sufficient and has increased confidence that the 2% inflation target will be met in 2025. Ahead, EUR traders will eye EZ Retail Sales while GBP traders will keep an eye on the BoE FSR at 10:30 GMT before waiting for any impulses from US data.


• In terms of technicals, GBP/USD sits within a tight 1.2590-2613 parameter with little in terms of nearby technicals aside from the 10 DMA (1.2630) and yesterday’s range (1.2574-2651). EUR/USD meanwhile sees its 100 DMA at 1.0769, 200 DMA at 1.0820 and 21 DMA at 1.0853. The pair also eyes mammoth near-the-money OpEx at 1.0770-80 (EUR 1bln) and 1.0800 (EUR 3.2bln).

06 Dec 2023 - 09:34- Research Sheet- Source: Newsquawk