EUROPEAN FX UPDATE: Peers benefit as DXY resumes its decline, but trades well off post-CPI lows

Analysis details (09:41)

DXY

The index is back on a softer footing following an overnight session of consolidation from yesterday’s CPI-induced losses, which dragged the index to a trough of 104.63 on Wednesday. DXY closed above 105.00 yesterday following commentary from Fed’s Daly, Kashkari, and Evans, who essentially called for more evidence of inflation pulling back before taking the foot off the hiking pedal, with the August CPI report due on September 13th ahead of the next FOMC meeting on September 20th-21st. However, the index trundled lower in early European hours from a 105.46 overnight high, to levels just under 105.00, but still some distance from yesterday’s low (104.63). “The low-yielder weighted DXY should find good demand below 105 and we would favour a recovery back to the 106.00/106.30 area”, say the analysts at ING. Ahead, US IJC and PPI could provide some impetus ahead of further commentary from Fed’s Daly in early APAC hours.

EUR, GBP

Both are firmer against the Dollar but to varying degrees, whilst the EUR trumps the GBP intraday. EUR/USD attempts to top its 50 DMA (1.0336) having so far notched a 1.0276-1.0332 daily parameter. Desks are taking note of the regional manufacturing challenges caused by the low water levels in Germany’s Rhine River, with reports yesterday suggesting a key point will be impassable by tomorrow. German energy firm RWE also flagged issues transporting coal due to low Rhine levels, in turn slowing the planned restart of coal-fired capacity in an environment where Russian gas supply is uncertain. Over the channel, Sterling sees gains to a lesser extent ahead of tomorrow’s GDP metrics, whilst BoE’s Chief Economist, after the European close, suggested that wage growth is running too fast at present and pricing pass-through from companies is too high, while he does not see a return of QE for at least the next few years. GBP/USD trades above its 10 and 50 DMAs (1.2157 and 1.2144 respectively) in a current 1.2183-1.2233 band.

NZD, AUD, CAD

The antipodeans once again lead the charge, with upside spurred by the gains across stocks overnight alongside a rise in commodity prices, namely copper and nickel. AUD/NZD tests 0.7100 to the upside after topping its 100 DMA (0.7086), with yesterday’s top at 0.7109 ahead of the 200 DMA at 0.7151. NZD/USD extended on gains above 0.6400 as it takes aim at its 100 DMA at 0.6441, but before that, yesterday’s high printed at 0.6434. CAD is the current G10 laggard following yesterday’s gains – USD/CAD resides just above 1.2750 after testing its 100 DMA (1.2794) overnight, whilst the 200 DMA resides at 1.2742 today.

JPY

USD/JPY has been pulling back from its overnight highs as a function of a softer Dollar and with Japanese traders absent on account of the Mountain Day Holiday in Japan. The pair resides in a 132.42-133.31 range vs yesterday’s 132.0-135.30.

11 Aug 2022 - 09:40- Fixed IncomeData- Source: Newsquawk