EUROPEAN FX UPDATE: Euro and Pound PMI pain precipitates healthy Greenback gain

Analysis details (10:18)

DXY/EUR/GBP

The Dollar was drifting and the index seemed set to retreat further from Tuesday’s peak, having slipped to 103.380 before a sharp pullback in the Euro revived its fortunes and propelled the DXY to 103.800. Eur/Usd reversed towards 1.0800 from a circa 1.0871 high primarily on the back of a much bigger than expected plunge in Germany’s preliminary services PMI, to 47.3 from 52.3 previously, but also due to contagion in the composite index that was seen in France and the pan Eurozone print as well. Moreover, the accompanying commentary was understandably downbeat and S&P’s HCOB GDP nowcast model, which incorporates the flash PMI estimate, indicates a deeper fall of the whole German economy than it did before, at almost -1%. However, the headline pair held above the psychological level where hefty 2.1 bn option expiry interest sat and remained close to 1.5 bn between 1.0825-30, as Sterling took the strain of even bleaker UK PMIs given misses against consensus across the board. To recap, manufacturing came in at 42.5 vs 45.0 forecast and the prior 45.3, services at 48.7 vs 51.0 and 51.5 and the composite at 47.9 vs 50.3 and 50.8 respectively. In response, Cable slumped from around 1.2727 to 1.2655 having already fallen in sympathy with Eur/Usd, the Eur/Gbp cross rebounded from just under 0.8500 towards 0.8545 and DXY nudged up to 103.840.

JPY

In stark contrast to the above, Japan’s flash PMIs were all better than anticipated, but the Yen gleaned more momentum from a combination of softer yields and retracement in Jpy crosses - Eur/Jpy and Gbp/Jpy especially and predictably. Consequently, Usd/Jpy reversed from 145.89 through decent support and importer bids at 145.50 before stalling just ahead of Monday’s low and 1.6 bn expiries at the 145.00 strike.

AUD/NZD/CHF/CAD

The Aussie and Kiwi waned as the Buck bounced rather than deeper PMI contractions in the case of the former or weaker than expected NZ retail sales, while the Franc and Loonie both remained relatively rangy tracking their US counterpart. Aud/Usd slipped within a 0.6451-17 range, Nzd/Usd pivoted 0.5950, Usd/Chf straddled 0.8800 and Usd/Cad rotated around 1.3550 awaiting Canadian retail sales for some independent impetus.

EM

Another fillip for the Cny and Cnh via the PBoC fix that was more than 1000 pips below forecast, while the Try needed Turkish state bank intervention to avoid total decimation on the eve of the CBRT after a slump in consumer confidence and the Zar managed to overlook softer than consensus SA CPI metrics with the aid of Gold topping Usd 1900/oz.

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