EUROPEAN FX UPDATE: Flash PMIs hit the EUR but fare better for GBP, but non-US Dollars outperform on commodities

Analysis details (09:44)

DXY

• The Dollar is firmer intraday as a function of the softer EUR post-PMIs, whilst the index attempts to trim the heft post-Fed losses after the ECB and BoE struck a less dovish tone than their US peer, in turn dragging the DXY down from a 104.03 pre-Fed high to a 101.76 low yesterday, briefly dipping under the 10th of August low (101.78) in the process. The index picked up some momentum upon the release of dismal French PMIs, and then saw another leg higher on the poor German release, with the DXY back on a 102.00 handle and towards session highs within a current 101.83-102.20 parameter. Ahead, Fed’s Williams is due to make an appearance on CNBC at 13:30 GMT and would be the first scheduled Fed speaker following Wednesday’s decision – participants will be on the lookout for how the NY Fed head’s views align with the Powell pivot. Aside from that, the Dollar also looks ahead to Industrial Production data and S&P Global Flash PMIs.

EUR, GBP

• Both on softer footings with the Single Currency the laggard amid dismal Flash PMI data whereby France and Germany fell deeper into contraction territory, with French GDP poised to contract 0.2% in Q4 and German GDP set for a second consecutive quarter of negative growth, according to their Nowcast models. The inflationary commentary was also concerning,  with the releases flagging higher services costs amid wage pressures. S&P Global highlighted one caveat with the German release however and suggested that the less-than-encouraging development “could be linked to the constitutional court ruling and the subsequent discord over the 2024 budget. This has injected a significant dose of uncertainty.” Data was collected between the 6th and 13th of December, so it is worth pointing out that on December 13th (end of the survey period) Germany announced a breakthrough and agreement for the 2024 budget - given the date crossover, it is unclear as to how much of the budget announcement is encapsulated by the data. S&P Global expects “only modest economic growth in the Eurozone, forecasted at 0.8% for the upcoming year, following 0.5% growth this year”. EUR/USD slipped to a session low of 1.0945 (vs intraday high of 1.1003) after printing a 1.1008 peak yesterday, just shy of the 29th Nov high (1.1017), with the next downside level being the 21 DMA (1.0880) ahead of yesterday’s low (1.0871). Option expiries for the NY cut today include 1.0840-50 (EUR 2.4bln), 1.0900 (EUR 1.3bln), 1.0910-20 (EUR 1.5bln), and 1.0950 (EUR 2.2bln).


• Conversely, GBP/USD saw a rosier Flash PMI release whereby Services and Composite rose further into expansion, with the accompanying commentary suggesting “the UK economy continues to dodge recession, with growth picking up some momentum”, but warned that “The service sector’s resilience and sticky inflation picture will add to speculation that it’s too early for the Bank of England to be talking about cutting interest rates, and will add fuel to some policymakers’ calls for further rate hikes.” Cable ultimately trimmed losses on the release but trades within a tight 1.2737-74 band after yesterday’s surge from a 1.2609 low. EUR/GBP slipped back towards its 10 DMA (0.8583) from a 0.8617 intraday high.

AUD, NZD, CAD, CNH

• All firmer intraday largely a factor of the commodities gains as a higher-than-expected Chinese Industrial Output metric (6.6% vs. Exp. 5.6%, Prev. 4.6%) revamped demand hopes for the commodities sector overnight, with sentiment also supported by China’s net CNY 800bln liquidity injection, which was seemingly a monthly record. AUD/USD resides as the top gainer at the time of writing with tailwinds from the improvement in Aussie Flash PMIs overnight but remains within a 0.6691-6724 range as it eyes Thursday’s high (0.6728) and then the 31st July peak (0.6739). NZD/USD remains well within yesterday’s 0.6166-6249 parameter. USD/CAD dipped under yesterday’s 1.3391 low as crude prices hold onto gains as it eyes the low from the 8th Aug (1.3362). USD/CNH is softer as the beat in Industrial Output data trumped the miss in Retail Sales (10.1% vs. Exp. 12.5%, Prev. 7.6%), with the aforementioned liquidity injection also likely lending a helping hand. It was also reported overnight that China is likely to set the 2024 GDP growth target at around 5% and is to target a budget deficit of 3% of GDP in 2024 vs. a revised ratio of 3.8% for 2023, while it may issue off-budget special bonds if the economy requires extra fiscal support, according to Reuters sources.

JPY

• The JPY is also on a slightly firmer footing on yield dynamics as US rates piggyback off European govvies post-PMIs. More domestically, Japanese PMI for Manufacturing deteriorated from the prior whilst the Services metric improved. “The latest survey also indicated a renewed pick up in inflationary pressures amid reports that a weaker exchange rate and higher labour and raw material costs had pushed up expenses. As a result, prices charged by Japanese firms increased at the quickest pace since August”, according to the release. That being said, traders are looking ahead to next week’s BoJ meeting which is expected to keep policy settings unchanged, although a December surprise cannot be ruled out given the surprise YCC tweak this time last year. USD/JPY found intraday resistance near its 200 DMA (142.51) at 142.46 before dipping under the 142.00 level to a current low of 141.57, with yesterday’s low at 140.94.

15 Dec 2023 - 09:51- ForexData- Source: Newsquawk