EUROPEAN FX UPDATE: Greenback resets before resuming its rally

Analysis details (10:54)

DXY

No obvious fresh drivers, but after taking time out and a pause for breath the Dollar continues to climb regardless with backing or validation from the Fed in context of guidance effectively exceeding market expectations for rate hikes this year. In fact, chair Powell has left the door open for tightening to be as aggressive as the most hawkish pundits suggest in pursuit of inflation that was deemed to be transitory until relatively recently when the FOMC consensus view changed. In short, Buck bulls are positioning for policy-makers to play catch up on the basis that they are well behind the curve and may need to sprint out of the blocks when the chase begins in March. Looking at the index as a general guide, another new high for January and the fledgling new year was posted at 97.429, leaving only 97.500 as half round number resistance before a stronger upside technical level at 97.720 that represents the 61.8% Fib retracement from 102.99 peak in 2020 to 89.210 trough in 2021. Ahead, busy US data docket, but PCE inflation metrics the highlight, while from a flow and hedge perspective Barclays month end rebalancing model is sending a strong buy signal for the Greenback against all G10 peers.  

AUD/NZD

In contrast to yesterday, the high beta/yield Aussie and Kiwi are lagging major counterparts due to their more risk sensitive propensities, with the former struggling to stay within sight of 0.7000 vs its US rival and the latter slipping beneath 0.6550 even though the Aud/Nzd cross has eased back below 1.0700 in the run up to the RBA policy meeting next week.

CAD/JPY

Intermittent support for the Loonie via WTI that remains not too distant from Thursday’s fresh apex a few cents over Usd 88.50, but as broad sentiment sours the correlation is loosening and Usd/Cad is edging up towards 1.2800 pre-Canadian budget balances and post-BoC hawkish hold. However, the Yen is not gleaning much in the way of traction from demand as a safe haven amidst a reversion to bear-steepening from flattening along the US Treasury curve and increasingly bearish chart impulses as Usd/Jpy breaches more psychological and Fib levels on the way to circa 115.69, including the latest at 115.67. Meanwhile, a decent spread of option expiries between 115.00 and 116.00 may also come into play at some stage before the NY (at the 115.00 strike, from 115.50-55 and 115.90-116.00 in 1.38 bn, 1.98 bn and 1.7 bn respectively).

GBP/CHF/EUR

All things equal, Sterling could be considered to be faring fairly well in the face of the Dollar’s overall supremacy, with Cable holding above 1.3350 and 0.8350 vs the Euro that is losing touch with 1.1150 against the Buck where 1.5 bn option expiries reside. Elsewhere, the Franc is trying to contain losses under 0.9300 following a firmer than forecast Swiss KOF indicator, but also marginally outperforming the Euro on the 1.0300 handle to keep the SNB engaged.

SCANDI/EM

Payback for the Nok following an upturn in Norway’s registered unemployment rate, while the Sek has not been able to take advantage of stronger than expected Swedish Q4 GDP as retail sales fell and sentiment indicators deteriorated. Conversely, some respite for the Try after an impressive rise in Turkish economic confidence, in contrast to the Zar that is retreating further post-SARB in tandem with Gold through Usd 1800/oz, while the Rub’s revival has stalled pending further developments on the Russian/Ukraine front.

28 Jan 2022 - 10:53- Fixed IncomeData- Source: newsquawk