EUROPEAN FX UPDATE: Greenback grinds higher amidst hawkish FOMC vibes

Analysis details (09:58)

DXY

Notwithstanding some supportive external factors and the latest IMM data showing that Dollar bulls are not overly long any more, the Buck is on a firmer footing overall approaching the Fed on Wednesday, and perhaps partly in recognition of GS flagging risks that the FOMC could begin hiking rates in March and tighten at every policy convene thereafter in 2022. The index is holding a firmer line above recent lows and the semi-psychological 95.500 level between 95.651-825 parameters and looking for further near term direction from Chicago’s National Activity Index, Markit’s flash US PMIs and/or any marked reaction in Treasury yields in response to the Usd 54 bn 2 year note auction.

JPY/CHF

It’s marginal, but the Yen and Franc both retain an underlying safe haven bid as broad risk sentiment continues to waver, or weaken at the time of writing to nudge the former towards 113.50 va its US peer and a Fib retracement level at 113.45, while the latter is back up from lows near 0.9150 and making further advances against the Euro to fresh multi-year peaks beyond 1.0350, irrespective of Swiss sight deposits showing another rise in domestic bank balances.

AUD/NZD

The Aussie is underperforming, and for good reason given a softer preliminary manufacturing PMI and contractionary services and composite readings, while copper prices also declined to push Aud/Usd down under a cloud base at 0.7167. Meanwhile, the Aud/Nzd cross has retreated through 1.0700 to the relative benefit of the Kiwi via Nzd/Usd staying within touching distance of 0.6700 ahead of NZ’s business PSI.

EUR/GBP/CAD  

Mixed Eurozone PMIs have not helped the Euro retest half round number resistance at 1.1350 vs the Greenback, but it is holding ‘comfortably’ above 1.13000 and a Fib just a pip below, while Sterling is also keeping its head over a Fib at 1.3525 irrespective of weaker than forecast UK PMIs and still awaiting the Gray report that could be the last straw for PM Johnson. Elsewhere, specs have turned net long of the Loonie alongside considerable appreciation in crude prices and hedging for a potential increase in rates by the BoC in 2 days time, but Usd/Cad is hugging the upper end of a 1.2601-1.2554 range.

SCANDI/EM

The aforementioned downturn in sentiment is weighing more heavily on the Nok and Sek after their breach of key technical supports last week, while the Rub is still feeling the heat from investors worried about Russian geopolitical and diplomatic tensions and the Zar is treading cautiously into the SARB this week even though Gold is setting its sights on Usd 1850/oz again. However, the Cnh and Cny are probing new highs since May 2018 following yet more PBoC easing (this time via the 14 day reverse repo), a net liquidity injection and firmer onshore Yuan midpoint fix.

24 Jan 2022 - 09:56- Fixed IncomeData- Source: newsquawk