EUROPEAN FX UPDATE: Greenback fades further after forging more gains

Analysis details (10:43)

DXY

The Buck was off best levels even before yesterday’s advance US Q1 GDP release revealed a widely unexpected contraction, but the retreat from pre-data peaks continued in what looked more like profit taking and long liquidation at the end of a cracking month for King Dollar. Indeed, there were more positive elements under the negative headline number, and in index terms some bullish momentum may have simply waned when 104.000 proved to be a psychological step too far. However, the DXY subsequently dipped beneath the round number below and Thursday’s 102.990 session low to 102.810 vs 103.630 at best and its fresh 103.930 multi-year peak amidst a raft of big figure breaks against basket components and beyond. On that note, the Yuan staged an impressive recovery following a deeper slide to sub-6.6900 for the Cnh and 6.6500 from a Cny perspective, with the Aussie drawing encouragement especially having weakened in sympathy, but the Euro and Yen also clawed back lost ground vs their US peer. Ahead, PCE price metrics may give the Greenback another boost.

GBP/EUR/AUD

In stark contrast to 24 hours or so ago, the race is on to extract most from their US rival’s retracement in a manner that suggests seizing the day or opportunity. The Pound and Aussie as cyclical or activity currencies are among the front-runners with Cable back over 1.2550 and Aud/Usd hovering just shy of 0.7150 post-PPI prints that will underpin expectations for the RBA to strike next week (+15-25 bp hike seen following hot CPI). Meanwhile, the Euro got close to 1.0600 without any assistance from stronger than forecast core Eurozone inflation readings, but could be hampered by hefty option expiry interest given 2.2 bn rolling off between 1.0575-65 at the NY cut.

NZD/CADJPY/CHF  

Also taking advantage of the situation, and the Kiwi and Loonie buoyant risk sentiment too, as Nzd/Usd reclaims 0.6500+ status and Usd/Cad reverses through 1.2800 and 1.2750 in the run up to monthly Canadian GDP. Elsewhere, the Yen was not that impaired by the absence of Japanese participants away for the Showa Day market holiday as it made its way all the back to circa 129.77 from worst levels pips from 131.00 and yesterday’s 131.25 multi-year trough and the Franc rebounded over 0.9700 with perhaps some assistance from an upbeat Swiss KoF survey instead of a drop in retail sales or dovish comments from SNB chair Jordan. In short, he stated that higher inflation has not justified an increase in interest rates, and in BoJ style added that the Bank does not react mechanically to every bout of upward pressure on the Chf.

SCANDI/EM

The Sek retains some of its Riksbank thrust, but the Nok is actually firmer on the back of Brent’s strong bounce and as noted above the Cny/Cnh are paring recent steep declines with China pledging more support for the ailing economy overnight. To recap, the Politburo said it  will implement a package of policies to support COVID affected industries and small firms, as well as rollout measures to support healthy development of the platform economy, while more recently SCMP sources reported an end to the regulatory storm over Big Tech and plans to give the sector bigger role in boosting the slowing economy. In similar vein, the CBR looks set to reverse another chunk of its emergency tightening to cushion the blow from adverse and contagious conflict effects, like sanctions and the Rub is up in anticipation.

29 Apr 2022 - 10:43- Fixed IncomeData- Source: Newsquawk