EUROPEAN FX UPDATE: Euro propped by EGB yields and enshrined in expiries

Analysis details (10:27)

DXY/EUR

The Greenback regrouped after a knee-jerk dip in deference of FOMC minutes that contained a couple of dovish-sounding vibes, like many members seeing a risk that the Fed could tighten more than necessary and it would be appropriate to slow the pace of increases at some point. However, the DXY hit resistance just shy of 107.000 in the form of a Fib retracement level at 106.960 and also resolve from various rivals on a number of factors ahead of US data (jobless claims, Philly Fed and existing home sales) and more current commentary from Fed officials via George and Kaskari. The Euro retained an underlying bid on relative bond spreads amidst hawkish ECB remarks from Schnabel in particular, but also Kazaks, as the former alluded to another big rate hike in September and the latter said more rises are in the pipeline to combat inflation. However, Eur/Usd continued to fade approaches towards 1.0200 and hefty option expiry interest may have strengthened the psychological barrier given 1.81 bn rolling off between the round number and 1.2005 plus 1.82 bn from 1.0215-25. On the flip-side, 1.61 bn at 1.0145-55 and 1.0165-75 were likely supportive.

AUD/GBP

Marginal outperformers, as the Aussie defended 0.6900 vs its US counterpart and Pound contained sub-1.2000 losses to a minimum, albeit largely due to a broad Buck fade. Indeed, Aud/Usd declined from 0.6950 overnight in wake of an unexpected fall in employment that was entirely down to full time jobs and only partly offset by a dip in the unemployment rate as participation dipped, while Sterling remained pressured by recession risk on the premise that rocketing UK inflation will force the BoE to act aggressively.

CAD/NOK

Some traction for the Loonie and Norwegian Crown from firmer crude prices, though the latter was also bolstered by the Norges Bank opting to stay with a 50 bp tightening pace and guide towards another hike in September - see 9.00BST post on the Headline Feed for more details, market reaction and analysis. Usd/Cad capped and floored within a 1.2947-01 range and Eur/Nok trade nearer the base of 9.8550-9.9150 parameters.

NZD/JPY/CHF

In contrast to the above, Wednesday’s ‘hawkish’ RBNZ hike left no lasting impression on the Kiwi as it sagged further vs its US and Aussie peers awaiting NZ trade data, while the Yen and Franc were unable to sustain momentum through 135.00 and 0.9500 respectively against their US rival on yield and overall risk dynamics.

EM     

Weaker vs the Usd in general, and the Cnh/Cny probably taking some heed of PBoC sources suggesting that LPRs could be cut next Monday and reports that China's banking regulator is looking into the property sector loan portfolios of some local/foreign lenders to assess systemic risk.

18 Aug 2022 - 10:27- Fixed IncomeData- Source: Newsquawk