EUROPEAN FX UPDATE: mini high beta revival and marked low yield reversal

Analysis details (10:36)

DXY

The Dollar index continued to drift and the lack of any meaningful upturn kept sellers in overall control, but the DXY derived some underlying support via a retreat in the Yen alongside the Franc and Pound as the latter digested downbeat UK data and a deterioration in consumer sentiment. As such, the index held close to 102.000 and off key technical support just above the w-t-d low between tight 101.930-102.310 confines ahead of US existing home sales and the last scheduled Fed speeches before the pre-February FOMC blackout period.

JPY/CHF/GBP

As noted above, the Yen came under renewed pressure, and largely due to long liquidation rather than Japanese fundamentals or specifics as national CPI metrics were broadly in line with consensus. However, Usd/Jpy rebounded from sub-128.50 lows through 129.50 amidst divergence in UST/JGB yields following more BoJ purchases, including a Yen 1.85 tn top up to its regular buying operation. Meanwhile, the Franc weakened from just over 0.9150 to just under 0.9200 after comments from SNB Chair Jordan warning about second round inflationary effects, but also stating that the Bank would not hesitate to reinstate NIRP if deflation returned. Sterling hit resistance only pips shy of 1.2400 and subsequently slipped beneath 1.2350 in the aftermath much worse than forecast ONS retail sales and GfK consumer confidence slumping to a half century low.

NZD/AUD         

A recovery of sorts in risk appetite helped the Kiwi and Aussie regain composure after underperformance on Thursday when the former was jolted by NZ political news and the latter by weaker than anticipated labour market data. Nzd/Usd regained 0.6400+ status irrespective of a dip in the manufacturing PMI and Aud/Usd pulled away from hefty 2+ bn option expiry interest at the 0.6900 strike to retest resistance at 0.6950 regardless of a softer Yuan in the run up to China’s Lunar New Year.

EUR/CAD   

Both restrained and narrowly mixed against the Greenback, with the Euro retaining grasp of the 1.0800 handle, but leggy and the Loonie keeping afloat of 1.3500, though unable to sustain momentum beyond 1.3450 awaiting Canadian retail sales for independent direction in advance of the BoC policy meet next week. 

EM

The Cny and Cnh were capped into 6.7500 and a chart hurdle nearby before retreating to straddle 6.7900 into the New Year break in mainly corrective price action given no change in LPRs by the PBoC, as widely expected. Elsewhere, the Zar remained beset by SA power problems and probed Fib support even though Gold extended its gains to circa Usd 1937.50/oz and the Huf traded hesitantly awaiting Hungary’s ratings review by Fitch.

20 Jan 2023 - 10:35- Fixed IncomeData- Source: Newsquawk