EUROPEAN FX UPDATE: DXY tilts higher as bond yields remain on the front foot ahead of NFP

Analysis details (10:13)

DXY

• The broader Dollar and index trades on either side of 102.50 but closer towards the upper end of a tight 102.35-60 intraday parameter thus far. The Buck is underpinned by the upside in yields as US bonds remain under pressure, with ING attributing the downside to “the toxic combination of resilient US activity indicators, rising supply, and the impact of Fitch’s downgrade” creating a “bearish pocket”.


• Ahead, the US jobs data will take precedence. Desks suggest this week’s ISM PMIs modestly skew the NFP metric towards a softer reading as the ISM manufacturing employment gauge fell to the lowest level in three years. The street expects 200k nonfarm payrolls to be added to the US economy in July. The wages measure will also be keenly eyed – Fed Chair Powell at his 26th July presser suggested the Fed wants wage growth at a rate consistent with 2% inflation over time, and he doesn’t think wages were an important cause for inflation early on but they are an important part of bringing it down now. – Full Newsquawk Preview available in the Research Suite.
  


• From a technical standpoint, DXY found overnight support between its 100 DMA (102.32) and 50 DMA (102.38), before briefly mounting 102.50, with the next upside level being yesterday’s 102.84 high. Thereafter, the psychological 103.00 and the 7th July peak (103.19) could prove to be resistance ahead of the 200 DMA (103.56). To the downside under the 100 and 50 DMAs, Wednesday’s low resides at 102.01, then Monday and Tuesday’s lows both at 101.84.

NZD, AUD, CAD

• The antipodeans narrowly outperform in the G10 space, trading flat/firmer, after consecutive sessions of hefty underperformance amid a combination of the RBA pause, risk aversion, and softer data from the region. AUD could also be feeling some relief from reports that China's MOFCOM lifts anti-dumping and anti-subsidy tariffs on Australian barley from August 5th, although this was widely telegraphed beforehand. Elsewhere, CAD is subdued ahead of the Canadian jobs report with little follow-through seen from the recent pre-JMMC rise in crude prices.


• In terms of technicals, AUD trade meanders around 0.6550 with yesterday’s low at 0.6511, then the 1st of June trough at 0.6483, and below that the 31st of March low at 0.6456. To the upside, Wednesday’s peak sits at 0.6629. Above that there is a cluster of DMAs including the 100 (0.6688). 50 DMA (0.6700), 21 DMA (0.6718), and 200 DMA (0.6732). NZD/USD sits in a 0.6077-6103 range with potential support around the 0.6057-58 region which marks a double bottom (lows from 30th June and yesterday). Under that, 0.6048 is the low from 29th June. Upside levels for NZD/USD are some way off with the 50 DMA at 0.6164 and the Wednesday high at 0.6169. CAD resides in a narrow 1.3335-70 range ahead of Canadian jobs data, with several large USD/CAD OpEx clips for today’s NY cut at 1.3200 (USD 1bln), 1.3260-75 (1bln), 1.3300 (2bln), 1.3325 (600mln), 1.3390-1.3400 (1.5bln).

JPY, CHF

• Traditional havens give up some recent risk-induced gains in the run-up to the US jobs report, with little in terms of fresh newsflow to drive price action in recent trade.


• USD/JPY is contained to a 142.32-88 range, well within yesterday’s 142.07-143.89 parameters. CHF meanwhile experienced slightly more pronounced weakness just before the European cash open and despite a lack of fresh fundamental headlines, with the Swiss currency the underperformer at the time of writing against both the EUR and the USD, with EUR/CHF back above 0.9602 (vs 0.9567 low) ahead of its 21 DMA (0.9625).

EUR, GBP

• Both are relatively flat against the USD and each other amid a light European calendar and quiet newsflow in the region. EUR/USD was unreactive to mixed EZ retail sales and the surprise and substantial growth in German Industrial Orders [7.0% vs. Exp. -2.0% (Prev. 6.4%)]. Meanwhile, an ECB Economic Bulletin suggested that underlying inflation likely peaked in the first half of 2023, but noted that although most measures are showing signs of easing, underlying inflation remains high overall.


• EUR/USD trades in a narrow 1.0936-61 range with near-term downside levels including the 50 DMA (1.0933), 100 DMA (1.0918), yesterday’s low (1.0910), then the 7th July low at 1.0865. GBP/USD found resistance near its 50 DMA (1.2733) at 1.2741, with yesterday’s low at 1.2620, with the 100 DMA at 1.2583.

Yuan

• Modest weakness is seen in the Yuan, whilst overnight commentary from a PBoC official suggested RRR cuts, open market operation, MLF and all structural policy tools need to be flexibly used to maintain reasonably ample liquidity in the banking system, adding that the PBoC will guide banks to effectively adjust mortgage interest rates and support banks to reasonably control the cost of liabilities. The official added that monetary policy room is ample and will step up counter-cyclical adjustment, and the central bank will reasonably handle interest rate levels to prevent capital arbitrage. USD/CNH topped its 50 and 21 DMAs at 7.1778 and 7.1810 respectively from a 7.1547 low.

04 Aug 2023 - 10:18- Research Sheet- Source: Newsquawk