EUROPEAN FX UPDATE: eyes peeled on PCE, big expiries and rebalancing needs

Analysis details (10:35)

DXY

US data in the guise of the Fed’s preferred core PCE inflation measure, may provide the Dollar with a fundamental reason to recoup some losses, but in the meantime the index appears to have found support ahead of a downside chart level at 101.350 as it holds around 101.500 and attempts to rebound within a 101.430-780 range. Moreover, month end factors look increasingly constructive for the Buck as the latest bank models signal a stronger buying requirement to balance asset portfolios, while hefty option expiry interest in several major pairings could underpin and there may also be a tendency to pare short positions ahead of the weekend as Monday is Memorial Day.

AUD/NZD

The Aussie and Kiwi are vying for top spot following a mostly buoyant APAC session in terms of risk sentiment, with Nzd/Usd and Aud/Usd both reclaiming round number-plus status to target technical and semi-psychological resistance respectively, at 0.6529 (38.2% Fib retracement of the retreat from 0.7034 peak to 0.6217 trough) and 0.7150. From a fundamental or independent perspective, the Aussie got confirmation of a 0.9% m/m rise in April retail sales via the final release overnight plus a squeeze in iron ore, and the Kiwi has the backing of a hawkish RBNZ of course.

CAD/NOK/MXN

Oil prices remain hot and for WTI just above yesterday’s high to keep the Loonie and Mexican Peso propped up around 1.2750 and 19.7500 against their US peer, while Brent extended on its cycle peak to top Usd 115/brl at best and give the Norwegian Crown fuel to probe 10.2000 vs the Euro. Note, decent expiry interest in Usd/Cad between 1.2750-60 (1.17 bn) could be influential into the NY cut.

GBP/EUR/JPY/CHF

Sterling set a fresh May apex circa 1.2667 before waning, like the Euro that reached 1.0765, while the Yen continues to meander after Thursday’s rally on BoJ Governor Kuroda comments and the Franc remains on a firmer trajectory following remarks from SNB President Jordan earlier in the week inferring an assessment of the global inflation situation and impact on Switzerland at June’s quarterly policy review. Usd/Jpy is hovering near 127.00 within a 127.20-126.68 band with eyes on 1.46 bn option expiries at 126-98-127.05 and Usd/Chf is sub-0.9600 between 0.9603-0.9565 extremes. Back to Eur/Usd, option expiries may also figure as 1.17 bn roll off from 1.0760-65 today.

SEK/EM

A pick-up in Swedish retail sales should give the Sek some incentive to stay afloat around 10.5500 against the Eur, while the Zar will be encouraged by Gold firmly breaching the 200 DMA to form a base over Usd 1850/oz and the Cnh/Cny have overcome a disappointing decline in Chinese industrial profits with technical assistance and reports that the State Council will seek specific implementation rules by May 31 regarding necessary measures at all levels of government and will dispatch inspection teams to all 31 provinces, municipalities and autonomous regions to oversee the rollout amid an urgent need for national economic mobilisation.

27 May 2022 - 10:35- Fixed IncomeEconomic Commentary- Source: Newsquawk