EUROPEAN FX UPDATE: Pound on the rebound, but Yen pressure unrelenting

Analysis details (10:24)

DXY/JPY/GBP

The Dollar and index lost upward momentum in low-key US holiday trade on Monday, but found underlying bids ahead of key technical and/or psychological levels to keep the latter propped around 109.500 within a relatively narrow 109.370-830 range (vs yesterday’s 109.610-110.270 extremes). However, several DXY components were much more active and broke beyond recent parameters, including the Yen that succumbed to more selling on carry/funding grounds not to mention stops when 141.00 was breached against the Buck on the way through 141.50 to 141.85, thus far. Note, a long term Fib, at 141.92 is all that’s left ahead of 142.00, while the Yen also slumped vs Sterling that saw a broad short squeeze in wake of the Tory leadership result and hawkish rhetoric from the BoE. Indeed, Cable briefly topped 1.1600 having been just under 1.1450 only yesterday and the Gbp/Jpy cross spiked to 164.30 from a intraday low a fraction below 162.00.

EUR

Some respite for the Euro and consolidation either side of 0.9950 against the Greenback, but decent option expiry interest between 0.9995-1.0000 capped Eur/Usd along with the more obvious resistance circa rather than weaker than expected German industrial orders or less hawkish sounding ECB commentary during the blackout period (albeit from a monthly publication).

AUD/NZD

In contrast to the above, Aussie and Kiwi recoveries vs their US rival were limited and short-lived as Aud/Usd and Nzd/Usd failed to sustain 0.6800+ and 0.6100+ status respectively, irrespective of the RBA delivering another 50 bp hike overnight. To recap, guidance for further tightening was maintained with no preset path, but the statement was tweaked to suggest a potential slowdown in the pace of rate increases ahead as the Board removed the line stating that more rises are required to normalise policy.

CAD/CHF

Both narrowly mixed vs their US and largely sidelined due to a lack of Canadian or Swiss specifics, with Usd/Cad meandering from 1.3096 to 1.3149 inversely with crude and Usd/Chf bouncing from 0.9765 to 0.9817 in tandem with US Treasury yields.

EM

Having regained some poise after reports of the PBoC’s impending FX reserve ratio requirement reduction, the Cny and Cnh came under renewed pressure irrespective of a firmer than forecast onshore midpoint fix, as Shanghai reportedly added one high-risk area and two middle-risk areas to its list following one local asymptomatic COVID case outside of quarantine.

06 Sep 2022 - 10:24- ForexResearch Sheet- Source: Newsquawk