EUROPEAN FX UPDATE: JPY dominates and other G10s fail to fully benefit from the Dollar pullback

Analysis details (09:26)

DXY, JPY

• The broader Dollar and index are pressured in early European trade by a rampant Yen, with participants attributing the notable upside in the Japanese currency to a surge in JGB yields coupled with commentary from BoJ Governor Ueda, who although maintained a dovish stance, also provided options on policy targets upon the end of NIRP. Furthermore, the Governor suggested that “handling of monetary policy would get tougher from the end of the year” – a comment which has sparked speculation of a live December 18-19th meeting following last year’s surprise December YCC tweak. “Our suspicion is that speculation of a BoJ move at the 18 December meeting is premature since there is no accompanying Outlook Report - a report that could show CPI sustainably hitting 2% and justifying an end to negative rate policy”, posits ING. The Governor also met with Japanese PM Kishida overnight but there was seemingly no specific discussion on FX and there were no special demands from PM Kishida.


• In terms of technicals, USD/JPY slumped from a 147.31 peak towards a 145.07 low at the time of writing – with technicians noting potential stops in place below the figure, with the next downside level on the 1st September at 144.43 ahead of the 10th August trough at 143.28. USD/JPY OpEx today consists of - 146.00 (USD 325mln), 146.50 (USD 645mln), 147.00-10 (USD 1bln). As a result of the JPY gains, DXY faded yesterday’s whole 103.86-104.23 upward move and some more to trade towards the bottom of a 104.20-13.84 range at the time of writing, after dipping back under its 21 DMA (103.84) ahead of the 200 DMA and 10 DMA at 103.55 and 103.43 respectively.


• Ahead, for the Dollar, labour market data is once again in focus ahead of Friday’s NFP report. Challenger will release its layoffs data for November, while weekly initial jobless claims are seen ticking up a touch while continuing claims are seen easing slightly. Wholesale sales and inventory revisions are released after the open. Towards the end of the session, consumer credit stats for October will be released. The US Treasury will announce the sizes for next week’s 3-year, 10-year, and 30-year sales.
  

EUR, GBP

• Both the EUR and GBP trade with modest gains against the Dollar and flat against each other, with the currencies failing to fully benefit from the Dollar’s pullback amid losses in EUR/JPY and GBP/JPY. The single currency saw the release of more downbeat industrial data, with the German Industrial Output MM missing expectations in October (-0.4% vs. Exp. 0.2%), echoing the downbeat Factory Orders data from yesterday. EUR saw a modest and fleeting downtick on the release which pared back a few minutes later. On the ECB front, ECB’s Villeroy reiterated recent comments while a Reuters poll showed all 90 economists unanimously expect the ECB to keep the Deposit Rate at 4.00% at next week's meeting, while 51 out of 90 expect a rate cut by end-Q2 2024 and the rest forecast a cut in Q3 2024 or later. EUR/USD briefly dipped under 100 DMA (1.0765) and below yesterday’s 1.0757 low overnight but ultimately remains caged in a 1.0754-82 intraday parameter. Option expiries for the pair today are notable: 1.0750-55 (EUR 1.1bln), 1.0765-75 (EUR 1.4bln), 1.0800-05 (EUR 1bln), 1.0825-30 (EUR 1.3bln), 1.0840-50 (EUR 1.4bln).


• Sterling meanwhile lacks any UK-specific catalysts and was unreactive in the mixed UK Halifax House Prices data, which noted: “The resilience seen in house prices during 2023 continues to be underpinned by a shortage of properties available, rather than any significant strengthening of buyer demand.” Elsewhere, a Reuters Poll showed participants expect the BoE to hold the Bank Rate at 5.25% through Q2-2024 (same as the November poll) before cutting to 5.00% in Q3-2024 (prev. 4.75%) and 4.50% in Q4-2024 (4.50%).  GBP/USD sits around the middle of a 1.2545-86 intraday range with downside levels including the 21 DMA (1.2517), 200 DMA (1.2481) and the 100 DMA (1.2465).

AUD, NZD, CAD

• Mixed trade across the non-US Dollars with the NZD and CAD flat against the Dollar while the AUD narrowly outperforms as base metals attempt a recovery from recent losses amid the Dollar pullback with little reaction to the Chinese and Aussie trade data overnight. China trade data mixed with exports better than expected while imports were softer. Some participants however pinned the APAC losses in AUD/USD to AUD/JPY selling at the time. AUD/USD briefly dipped under its 21 DMA (0.6539) to a 0.6526 low before rebounding to session highs. NZD/USD is flat between 0.6114-48. USD/CAD is also uneventful post-BoC in a 1.3584-1.3607 range.

07 Dec 2023 - 09:31- Research Sheet- Source: Newsquawk