EUROPEAN FX UPDATE: DXY underpinned by a softer post-GDP GBP as the FOMC looms

Analysis details (09:46)

DXY

• A positive start to the session for the broader Dollar and index with some assistance from a weaker GBP (more below) and as the clock ticks down to the main focus of the US day will be the FOMC’s policy announcement, whereby the Fed is all but certain to keep rates unchanged on Wednesday at 5.25-5.50% with focus on the accompanying SEPs ('Dot Plot') to gauge the magnitude of cuts in store for 2024 and beyond. The statement is expected to see minor tweaks but still maintain the optionality for further tightening. The SEPs will be the key focus (Full Newsquawk Preview available in the Research Suite). Before that, PPI metrics for November will be eyed, and the annual rates of producer price inflation are expected to ease.


• In terms of technicals, the index found resistance at 104.00 following the GDP-induced losses in GBP at the time, but overall remains contained to a 25-point range between 103.75-104.00. Nearby downside levels include the 21 DMA (103.66), 200 DMA (103.53), yesterday’s low (103.48), the 8th December low (103.43) and the 7th December low (103.25). Upside levels include yesterday’s high (104.09), Monday’s peak (104.26), last Friday’s high (104.27) and then the 100 DMA (104.58) ahead of 105.00.

GBP, EUR

• Sterling is among the G10 laggards following the dismal GDP data on the eve of the BoE, although the data will likely not have any influence on tomorrow’s decision, where expectations are for the MPC to stand pat, maintain its Base Rate at 5.25% for a third consecutive meeting – (Full Newsquawk Preview available in the Research Suite). GDP in October was estimated to have posted a surprise contraction of -0.3% on a 3M/3M basis (exp. 0.0%, prev. 0.2%), with the report noting declines in every sector (services, construction and production). "October’s drop in GDP adds to the growing list of recent downside data surprises, but we still doubt that the MPC will change its tune and signal its willingness to cut Bank Rate next year as soon as this week’s meeting," Pantheon Macroeconomics said. GBP/USD fell from levels around 1.2550 to session lows of 1.2518 post data to print a current intraday range of 1.2518-72.


• The EUR posts mild losses but remains somewhat cushioned by the aforementioned GBP losses via the EUR/GBP cross whilst EUR traders also look ahead to tomorrow’s ECB confab (Full Newsquawk Preview in the Research Suite). Elsewhere, reports this morning suggested the German government has reportedly come to an agreement over its 2024 budget, and coalition officials will deliver a briefing at 11:00GMT/06:00EST, meanwhile. the IFW Economic Institute said the German economy was expected to contract by 0.5% in 2024 due to the budget crisis, adding that "in the worst-case scenario, a decline of one percentage point was even possible." Ahead, Eurozone industrial production is seen slipping further in October, though the annual rate of decline is expected to improve a little, but all eyes will be on the US for PPI and the FOMC announcement. EUR/USD trades within a tight 1.0781-99 range ahead of but still within yesterday’s 1.0757-1.0827 parameter and in between the 100 DMA (1.0753) and 200 DMA (1.0824). Notable EUR OpEx today include 1.0775-80 (EUR 985mln), 1.0790-1.8000 (EUR 1.5bln), 1.0840-50 (EUR 1.7bln), 1.0920-30 (EUR 1.5bln) in EUR/USD and 0.8700 (EUR 810mln) in EUR/GBP.

JPY

• The Yen is on a softer footing as the DXY remains firm and yields are stable pre-FOMC. Japan saw the release of the quarterly BoJ Tankan survey which overall was more upbeat about this year but remained cautious through 2024. “The BoJ will be modestly cheered by the improved sentiment in the Tankan index, notably that firms feel severe cost pressures are abating.  But the outlook index fell and employment conditions forecast indices remain deeply negative, at -25 for large manufacturers and -37 for large non-manufacturers.  This casts doubts about the willingness of employers to grant unions’ assertive wage demands in the upcoming spring talks.  The BoJ will likely keep the negative policy rate in place at next week’s policy meeting.”, says analysts at Pantheon. Sticking with domestics, Japanese PM Kishida announced that his cabinet reshuffle will be announced on December 14th. USD/JPY resides towards the top of a 145.17-99 range, within yesterday’s 144.72-146.18 parameter. Notable USD/JPY OpEx include 145.00 (EUR 1.0bln), 146.00 (EUR 1.3bln), and 147.00 (EUR 1.0bln).

AUD, NZD, CAD

• The non-US Dollars are all softer to varying degrees. The NZD lags in the G10 bunch following the larger NZ current account deficit reported overnight coupled with reports that New Zealand passed the law to return the RBNZ to a single inflation mandate, as expected following the recent elections, thus removing employment from its mandate. NZD/USD slipped from a 0.6139 high, through its 21 DMA (0.6096) before briefly dipping under its 200 DMA (0.6087). AUD/USD is relatively flat/subdued in a 0.6542-67 range with the 21 DMA and 200 DMAs seen at 0.6571 and 0.6574 respectively. USD/CAD is flat under in a 1.3586-36.08 range, with the pair back under its 100 DMA (1.3594) at the time of writing.

13 Dec 2023 - 09:50- Research Sheet- Source: Newsquawk