EUROPEAN FX UPDATE: High-betas march higher as DXY is subdued whilst JPY gives up some recent gains

Analysis details (09:41)

USD

The DXY remains subdued in early European trade following a relatively contained APAC session, with the overnight high at 106.51. The index trundled lower as European players entered the fray to a current intraday low of 106.25, with participants awaiting US IJC, Challenger layoffs, and Fed 2024-Mester. Before that, the Buck will likely see some influence via the GBP as Threadneedle Street gears up for a potential 50bps BoE hike (more below). From a technical perspective for the DXY, yesterday’s low sits at 105.97, whilst to the upside, yesterday’s peak stands at 106.82 ahead of the 21 DMA at 106.94. “Expect the dollar to remain reasonably bid against the low yielders (EUR and JPY) and DXY could nudge back towards the 107 area”, say analysts at ING.

GBP, EUR

GBP/USD is currently buoyed, but seemingly more as a function of the Dollar than BoE positioning (at the time of writing) as EUR/GBP trades flat and horizontally. Markets are currently pricing a +90% chance of a 50bps BoE hike to 1.75%, with eyes on the MPC’s commitment to further tightening (full Newsquawk preview available in the Research Suite). Technicians meanwhile will be aware of the 50 DMA in GBP/USD at 1.2190 to the upside, whilst yesterday’s high and low printed at 1.2207 and 1.2097 respectively. The Euro sees some Dollar-induced upside with EUR/USD somewhat caged between its 10 DMA (1.0192) and its 21 DMA (1.0156). Desks are watching headwinds from nat gas prices in Europe amidst the debacle over Russian gas flows, whilst German year-ahead power rose to another record this morning. Some also highlight headwinds from a widening 2yr EUR:USD swap spread. EUR/USD OpEx today sees several sizeable clips near the money - 1.0100 (EUR 1.22bln), 1.0150 (EUR 2.40bln), 1.0200-05 (EUR 1.46bln). EUR/GBP is choppy in a tight 20-pip range awaiting the BoE – ING believes that the cross could fall to the 0.8275/0.8300 if the BoE retains “language that it will still be prepared to act forcefully - even after the presumed 50bp rate hike today.”

AUD, NZD, CAD

A mixed session thus far for the non-US Dollars, with the Antipodeans leading the charge whilst the Loonie remained suppressed. AUD/USD popped above its 50 DMA (0.6958) to a current 0.6976 intraday high as buyers stepped in following a wider-than-expected June trade surplus. NZD/USD narrowly outperforms G10 peers after the pair rose above its respective 50 DMA (0.6293) and the 0.6300 mark, whilst the AUD/NZD cross eyes 1.1050 to the downside. USD/CAD saw some overnight resistance near its 50 DMA (1.2857) at 1.2855, with upside for the Loonie hindered by subdued crude prices.

JPY, HKD

JPY resides as the current G10 laggard with recent Fed rhetoric fuelling a retracement of last week’s USD/JPY downside. The pair yesterday encountered resistance at its 50 DMA – which today stands at 134.73, whilst the 10 DMA dipped under the 50 DMA to reside at 134.64. Today’s NY cut also eyes a slew of OpEx at 133.00 (USD 1.41bln), 134.80-85 (USD 1.08bln), 135.00-05 (USD 2.14bln). Finally, the HKD gained some attention overnight after the HKMA defended the HKD peg from the weaker end with a larger-than-usual HKD 14.16bln bought from the market, which compares to the HKD 1-6.5bln seen recently. 

04 Aug 2022 - 09:41- Research Sheet- Source: Newsquawk