EUROPEAN FX UPDATE: Kuroda keeps Yen depressed, but Euro holds up pre-Lagarde

Analysis details (10:06)

DXY/JPY/EUR

The Dollar may derive some independent impetus and direction from jobless claims or the Philly Fed survey, but Thursday’s headline events lie elsewhere and already prompted price action via the BoJ maintaining an ultra-accommodative stance and Governor Kuroda ramming home dovish guidance at the post-policy meeting press conference. To recap, he stressed the importance of keeping rates low and yield curve control as inflation is still not seen staying above target sustainably, while he also reiterated no intention to widen the 10 year JGB yield tolerance band. In response, Usd/Jpy advanced through 138.50 and stops touted on a breach of 135.55 to 138.75, while the DXY rebounded to retest 107.000 compared to a 106.670 low. However, the index subsequently carved out a minor new intraday peak at 107.220 when the Euro relinquished 1.0200+ status vs the Buck on confirmation of Italian PM Draghi tendering his resignation to President Matarella for the second time. Nevertheless, Eur/Usd remained relatively elevated within a 1.0231-1.0172 range awaiting the ECB and what is widely seen as a knife-edge call from the GC between a 25 bp or 50 bp hike, with market pricing just tilting in favour of the latter. Note also, decent option expiry interest in the headline pair was supportive, as 1.84 bn from 1.0200-10 outweighed 1.21 bn at parity.

NZD/GBP/CHF/AUD/CAD

It was almost a case of zero from hero for the Kiwi as it went from first to last place on the G10 grid and lost grip of the 0.6200 handle against its US counterpart in the process. Conversely, the Aussie contained declines from 0.6900+ peaks to around 0.6864 with help from a bounce in Aud/Nzd towards 1.1100 from circa 1.1055 and perhaps some encouragement from the fact that NAB business conditions picked up to compensate for a drop in confidence. Next up for Aud/Usd, Australian preliminary PMIs. Elsewhere, the Pound reversed from just over 1.2000 to sub-1.1950, the Franc from a few pips above 0.9700 to 0.9739 and the Loonie back under 1.2900 from around 1.2860 against the backdrop of renewed weakness in oil prices.         

SCANDI/EM

Brent’s demise prompted mild underperformance in the Nok relative to the Sek along with a fall in Norwegian industrial sentiment, while the Try and Zar both traded defensively ahead of CBRT and SARB rate decisions, and the Idr weakened in wake of the BI holding rates at a record low and irrespective of the Bank intervening in the spot and NDF market. In China, further downside for the Cnh and Cny as China continued to bristle over US ties with Taiwan.

21 Jul 2022 - 10:06- Fixed IncomeEconomic Commentary- Source: Newsquawk