EUROPEAN FX UPDATE: DXY unable to reclaim 107, CNY surges, EUR and GBP pause

Analysis details (09:01)

USD

Initial gains for the DXY proved to be fleeting thus far with the index unable to breach 107 to the upside despite comments from Fed 2022 voter Waller. Over the weekend, Waller noted that the market got ahead of itself in reacting to last week’s CPI release, adding that the Fed would need to see a string of reports before taking its foot off the gas. Nonetheless, the DXY has been unable to claw back any meaningful ground and is only just above the overnight low of 106.47. If we see a retest of this level to the downside, Friday’s 106.27 trough could come into play before opening up a test of the 106 level itself. If 106 is breached, ING thinks that 105 could likely be the stopping point for the sell-off. The focus for the session ahead will fall on the Biden-Xi meeting at 0930GMT, ahead of which, it has been reported that Biden will make it clear in the meeting with Chinese President Xi that the US does not seek competition or conflict.

EUR/GBP

EUR is a touch softer vs. the Greenback at the time of writing after printing an overnight peak of 1.0367, which technicians highlight is in close proximity to the August high of 1.0369. In terms of fundamental drivers for the EUR, there hasn’t been a great deal to digest over the weekend and today’s data slate is light with Eurozone Industrial Production unlikely to sway the currency. Option activity is also light for the pair and as such, with the rally seemingly pausing for breath, the pair may well be guided more by the USD side of the equation. For GBP, it’s set to be a busy week in terms of data and the all-important Autumn statement. With regards to the latter, Chancellor Hunt is reportedly planning to commit around GBP 20bln to extend the energy price guarantee scheme by six months from April, whilst cautioning that the OBR forecasts will likely present a similar picture to recent BoE forecasts of a recession. Similarly to EUR/USD, the rally in cable appears to have run out of steam for now with the pair lingering around the 1.18 mark vs. the overnight peak of 1.1818 and Friday’s best of 1.1855.Desks remain unfavourable on GBP/USD with Danske Bank issuing 3M, 6M and 12M forecasts of 1.11, 1.09 and 1.08 respectively.

CNY/CNH

The Yuan has been a key focus for the FX space overnight after the PBoC opted for its strongest FX fix since September 27th at 7.0899 vs. Friday’s fix of 7.1907. Updates for China have been plentiful over the weekend with positivity emanating from news that the PBoC and China's Banking and Insurance Regulator told financial institutions to extend support for property firms. Less encouragingly, Beijing authorities stated on Monday they are to further strengthen COVID prevention and control measures and reminded residents not to go out unless necessary; the measures are seen as a response to the mounting pressure of soaring cases in the city. Nonetheless, the CNY saw the domestic session out at 7.0378 which was the strongest such close since September 20th. If the rally in CNY continues, the psychological 7.00 mark will come into view, a level which hasn’t been breached since September 19th.

JPY/CHF

Both of the traditional safe-havens are softer vs. the greenback with the JPY the notable laggard in G10 FX. The USD/JPY sold-off particularly heavily last week with the pair falling from a 146 handle to an overnight low of 138.48. In terms of today’s upside, a pause from the sell-off was likely at some stage and it is possible that the latest dovish interjection from BoJ Kuroda who noted that now is the time to continue with monetary easing, served as a reminder of the gulf in policies being adopted by the Fed and BoJ regardless of a pullback in US CPI. Elsewhere, the CHF is also softer vs. the greenback with the EUR/CHF cross flat as it pauses from the heavy selling pressure last week after the SNB noted that it could sell FX reserves if needed. ING favour a lower EUR/CHF over the coming months as the SNB attempts to keep the real FX rate stable.

14 Nov 2022 - 09:01- Fixed IncomeEconomic Commentary- Source: Newsquawk