EUROPEAN FX UPDATE: Greenback still ceding ground as clock to CPI winds down

Analysis details (10:08)

DXY/JPY

At the risk of sounding repetitive, the Dollar and index weakened further due to a combination of familiar factors, as US Treasuries maintained their recovery momentum to the benefit of the Yen in particular and the Yuan clawed back more losses with ongoing impetus from the PBoC. Usd/Jpy extended its already sharp reversal through yet another big figure, at 140.00 where more stops were triggered and technical support levels breached on the way down to 139.32. The headline pair hardly stopped to acknowledge much worse than expected Japanese machinery orders or softer than consensus corporate goods prices, perhaps on the premise that impending US inflation data is also expected to be benign. However, the DXY gleaned some traction at 101.330 to stay in touch with 101.500 having faded at 101.610 and also awaiting several Fed speakers ahead of the latest Beige Book.

EUR/CHF/CAD/GBP/AUD/NZD

All firmer vs the Buck, but somewhat reluctant to push the envelope too far pending event risk. The Euro nestled relatively comfortably above 1.1000, the Franc kept mainly afloat of 0.8800, the Loonie sat tight just below 1.3200 in advance of the BoC and widely tipped second 25 bp hike in a row, Sterling extended beyond 1.2900 towards the next round number, the Aussie breached 0.6700 and the 21 DMA on approach to 0.6750 before waning and the Kiwi remained elevated within a 0.6190-0.6239 range post-RBNZ. On that note, the OCR was maintained at 5.50% in line with expectations and the Bank signalled no further tightening, but there was a hawkish element to guidance as rates will need to stay restrictive for the foreseeable future. Conversely, comments from RBA Governor Lowe came with a dovish twist as he said it is possible that some further tightening will be required to return inflation to target and it remains to be determined whether monetary policy has more work to do. Back to Eur/Usd, 1.6 bn option expiries between 1.0985-1.1000 could be deemed a prop pre-NY cut, while implied volatility in Usd/Cad indicated a decent 66 pip break-even for US CPI and the BoC, and Cable was largely unreactive to the latest BoE FSR or remarks post-publication.

SCANDI/EM     

Some payback for the Sek after Tuesday’s corrective and NATO-related gains, but the Nok continued to derive traction from Brent. Elsewhere, the Cny and Cnh were boosted by the PBoC’s firm midpoint fix, the Mxn was underpinned by strength in WTI and the Czk via a dip in the Czech jobless rate, but the Try did not derive much encouragement from Turkish ip declining at a considerably slower pace.

12 Jul 2023 - 10:08- Research Sheet- Source: Newsquawk