EUROPEAN FX UPDATE: intervention the only form of protection for Dollar peers

Analysis details (09:59)

DXY/JPY

The Buck lost a bit of momentum after Tuesday’s booming return from the long US holiday weekend and almost full big figure rally in index terms. Consolidation was a factor along with marginally softer Treasury yields, but various forms of intervention were the main catalysts behind the Greenback’s fade, including physical action in China and India along with a notable rise in the volume from Japanese officials. Indeed, top currency diplomat Kanda was backed up by Chief Cabinet Secretary Matsuno with the usual refrains that it is important for FX to move stably reflecting fundamentals, sharp moves are undesirable and being watched with a high sense of urgency, adding that the authorities will respond as necessary and no option is ruled out. However, following a retreat from 104.870 the DXY found underlying support ahead of 105.500 and Usd/Jpy held just above 147.00 before bouncing towards 147.50 again, albeit remaining shy of the overnight high circa 147.81 and keeping the index capped ahead of 105.000 and yesterday’s 104.900 best. 

AUD/CNY-CNH/NZD     

Firmer than forecast Q2 GDP metrics may have helped the Aussie retain sight of 0.6400 against its US rival, but in truth Aud/Usd was underpinned by downturns in Usd/Cny and Usd/Cnh after concerted intervention by China's major state-owned banks that withdrew Yuan liquidity in the offshore market and sold spot onshore. Hence, the respective pairs pulled back from just over 7.3200 and under 7.3300 to sub-7.3050 and towards 7.3000 ahead of Chinese trade data and Aud/Nzd climbed from 1.0835 to 1.0588 awaiting Australian trade, while Nzd/Usd lagged within a 0.5903-0.5862 range in advance of NZ manufacturing sales. 

EUR

The Euro managed to keep afloat of 1.0700 having waned into 1.0750 by virtue of some EGB/UST spread convergence rather than mixed ECB rhetoric or Eurozone construction PMIs, while much worse than expected German factory orders were largely explained away. Nevertheless, Eur/Usd was hampered by hefty option expiry interest given 2.53 bn rolling off between 1.0740-50 at the NY cut that coincided with the release of the US services ISM.

GBP/CHF/CAD

Sterling failed to glean any real impetus from the UK construction PMI exceeding consensus as it still slowed from 51.7 to 50.8, but Cable contained delines within 1.2587-47 confines and held well above 1.21 bn option expiries at the 1.2500 strike. Elsewhere, the Franc was tightly bound in the absence of anything Swiss specific, but the Loonie lagged as crude prices eased back from post-Saudi/Russia output cut extension pinnacles and the spotlight turned to the BoC that was widely expected to continue its rate pause. Usd/Chf flitted from 0.8905 to 0.8822 and Usd/Cad rotated around 1.3650 wary of 1.45 bn option expiry interest at the round number below.

SCANDI/EM

The Nok pivoted 11.5000 vs the Eur in wake of a narrower Norwegian current account surplus and dip in Brent, while the Czk slipped around the 24.2000 axis amidst considerably weaker than expected Czech ip and a shock swing in the trade balance from surplus to deficit, and the Pln was mostly weaker within a 4.5070-4.4900 range before the NBP that may or may not deliver its first rate cut.

06 Sep 2023 - 09:59- Research Sheet- Source: Newsquawk