EUROPEAN FX UPDATE: hawkish ECB vibes help Euro hit two week highs

Analysis details (10:02)

DXY/EUR

The Euro remained just behind its Antipodean peers in the G10 community, but vaulted other majors on the back of an ECB sources piece suggesting that the GC will decide between a 25 bp or 50 bp hike this Thursday, irrespective of prior guidance. Eur/Usd secured a firm enough grip on the 1.0200 handle to probe 1.0250 even though subsequent reports highlighted that is is uncertain whether there would be sufficient votes to back the larger tightening move, as EGBs reversed sharply amidst pronounced bear-flattening along the curve and money markets ramped hike bets back up, to 100+ bp by September. Meanwhile, the Buck buckled and index retreated to 106.530 for an even bigger retracement from its 109.790 y-t-d peak posted only last Thursday.

NZD/AUD

As noted above, the Kiwi and Aussie both kept noses just ahead of the chasing pack, with the former finally breaching 0.6200 vs its US counterpart and the latter extending beyond 0.6850 to almost 0.6900 following RBA minutes underscoring the need for more rate hikes. Moreover, Deputy Governor Bullock said wages are starting to rise a little more, while she added that they need to get rates up to some sort of neutral and neutral is a fair bit higher than where they currently are.

CHF/GBP/JPY/CAD

All firmer against the Greenback, albeit to varying degrees and not necessarily due to bullish specifics, as the Franc claws back some lost ground to retest 0.9700 after Swiss trade data showing a wider overall surplus and slowdown in watch exports, while the Pound piggy-backs others to reclaim 1.2000+ status, but lags vs the Euro with the cross above 0.8500 after mixed UK labour data. Elsewhere, the Yen is back above 138.00, but could be thwarted by key technical resistance in the form of a Fib at 137.52, or hefty option expiry interest at the round number given 2.72 bn rolling off at the NY cut, and the Loonie has lost some thrust from crude along with psychological impetus having briefly pierced 1.2900 yesterday, with Usd/Cad rebounding relatively firmly between 1.2990-35 parameters.

SCANDI  

The Nok and Sek are actually outpacing the Eur amidst a broad downturn in risk appetite that is also weighing on oil prices, and the inference could be perceptions that if the ECB goes big this week then the Norges Bank and Riksbank may be tempted to up their game with a faster pace of tightening at the next respective policy meetings.

19 Jul 2022 - 10:02- Fixed IncomeData- Source: Newsquawk