EUROPEAN FX UPDATE: Non-US Dollars outperform whilst the Yen lags and DXY attempts a recovery

Analysis details (09:54)

DXY

The index is again attempting to nurse some of its post-CPI losses with DXY rebounding from a 105.08 overnight low to a current 105.35 European high. News flow for the Buck has once again been quiet this morning, but participants are looking ahead to the University of Michigan prelim survey, with some desks expecting an upside surprise amid the decline of US gasoline prices back under USD 4/gal from around USD 5/gal last month. “A drop in inflation expectations may suggest the Fed can be more relaxed on inflation. But there are no signs of that coming through in its rhetoric. Instead, the bigger impact may be the bounce in consumer sentiment, reduced fears of a 2023 recession, and the pricing out of some of the 50bp of easing expected in 2H23. This should be a dollar-positive development”, ING says, “DXY should be able to edge a little higher today. A break above 105.50 would go a long way to stabilising it after the heavy losses suffered on Wednesday's US CPI release.” Meanwhile, from a technical perspective. The upside sees yesterday's high at 105.46, then the 50 and 10 DMAs at 105.65 and 105.89 respectively, whilst the downside sees the post-CPI low at 104.63 – printed on both Wednesday and Thursday. 

EUR, GBP

Both are pressured by the firmer Dollar but flat intraday against each other. EUR/USD focuses on Germany’s Rhine River situation whereby reports suggested water levels are on track to breach critical levels for navigability today and potentially trigger disruptions to trade of fuels across the continent, according to German government data cited by Bloomberg. However, German press Faz suggested Germany does not expect low Rhine levels to halt ship traffic, thus markets may be on the lookout for further clarity on the key trade route. EUR/USD failed a breach above its 50 DMA (1.0328) but remains above yesterday’s 1.0274 low, with downside levels including the 10 and 21 DMAs at 1.0232 and 1.0207 respectively. In terms of OpEx, EUR/USD sees large clips at 1.0300-10 (EUR 2.86bln), 1.0325 (EUR 814mln), 1.0350 (EUR 841mln). Across the channel, GBP/USD briefly popped above 1.2200 to a 1.2215 peak as the UK monthly GDP contraction was narrower than feared, but the move faded as the BoE's MPC remains firmly focused on the inflation outlook, and amid Dollar strength. Cable resides above its 10, 50, and 21 DMAs at 1.2156, 1.2138, and 1.2089 respectively.

AUD, NZD, CAD, JPY

The non-US Dollars are the outperformers this morning on the back of the general risk tone across stocks and the rise in commodities. NZD is slightly outperforming after firmer PMI and Food Prices ahead of the RBNZ announcement next week – whereby a 50bps hike is expected to be accompanied by hawkish rhetoric. NZD/USD resides around 0.6450 and in the middle of a current 0.6426-68 band. AUD/USD meanwhile sees some support from the firmer copper price - the pair found some support near its 100 DMA (0.7082) ahead of its 200 DMA at 0.7150. USD/CAD oscillates around its 200 DMA at 1.2743 in a 1.2740-72 range. JPY is the current G10 laggard with risk sentiment on the front foot, but the upside in USD/JPY is somewhat stalled at the 10 DMA (133.57). From a technical standpoint, USD/JPY sees its 50 and 21 DMAs at 135.31 and 135.23 respectively, whilst the 100 DMA resides to the downside at 131.34.

SEK

Fleeting SEK upside was seen in wake of inflation data, with the metrics being in-line/below expectations, whilst the two Y/Y (headline and ex-energy) metrics printed above the Riksbank's view for June and above the Bank's peak inflation view as well. As such, the data continues to support sizeable policy action by the Riksbank at the September gathering; but the easing in the headline pushes back against some of the minority calls for an intra-meeting hike. EUR/SEK tested its levels near its 100 DMA (10.4266) from a 10.3798 base.

12 Aug 2022 - 09:53- Research Sheet- Source: Newsquawk