EUROPEAN FX UPDATE: Risk aversion underpins the Dollar while antipodeans plumb the depths and petro-FX trade on the backfoot

Analysis details (09:45)

DXY, CNH

• A firm session thus far the index, irrespective of the slide in bond yields, in what is seemingly a flight to safety against the backdrop of the soured risk sentiment – largely emanating from the world’s two largest economies.


• Stateside, Moody's cut the ratings of 10 US banks by one notch and placed some larger banks on review for potential downgrades. In China, the deeper-than-expected contractions in exports and imports underscored dire demand – both domestic and foreign, whilst reports also flagged Chinese developers missing payments. Add to that, the mood in Europe is also sullied by reports via Italian press of a new windfall tax on Italian banks.


• From a technical standpoint, DXY topped the APAC high and yesterday’s peak (at 102.37 and 102.38 respectively) to a current high of 102.40 (from a 102.07 low). The pair remains above its 100 and 50 DMAs – both at 102.30 today, with Friday’s high the next resistance level above 102.50 at 102.62. On the downside, yesterday’s low sits at 101.96 ahead of Friday’s 101.73 trough.


• The Yuan experiences clear weakness after the slump in trade in July threatens China’s recovery prospects and adds pressure for authorities to deploy more stimulus – eyes are on tomorrow’s Chinese inflation data. USD/CNH sits around 7.2250 at the time of writing in a current 7.1994-2323 intraday parameter – with the high from the 11th of July at 7.2362 and the 19th of July at 7.2368. Above that, the peak from the 10th of July sits at 7.2490 ahead of the 7.2500 mark.

AUD, NZD

• The Antipodeans are the marked laggards in early European hours amid the aforementioned downbeat risk tone and concerning Chinese trade data, whilst Australia also saw a decline in consumer confidence and sentiment data overnight.


• Overnight, AUD/USD fell from a 0.6576 high to a session low of 0.6522 in early European trade, with last Thursday’s low at 0.6511 ahead of 0.6500 – thereafter the next downside levels include the 1st of June low at 0.6483, then the YTD trough (31st May low) at 0.6456.


• NZD/USD dipped under last Thursday’s 0.6058, with the low from 29th June at 0.6048 – thereafter 0.6028 marks a double-bottom from the lows set on 7th and 8th of June. Below that the psychological 0.6000 mark could prove to be support ahead of the 1st of June low at 0.5989.

JPY, CHF

• The traditional havens are softer on the back of the firmer Dollar, but losses are cushioned by the haven statuses, whilst a decline in US yields could also be providing some padding against the Buck.


• USD/JPY meanders around the 143.00 mark in a 142.39-143.44 parameter with some potential resistance seen around the 2nd August high at 143.47, the 1st August peak at 143.54, and last week’s high set on Thursday at 143.89. Above that, technicians eye the 144.00 psychological mark before the 7th of July peak at 144.19. To the downside, the pair sees yesterday’s low at 141.51, its 50 DMA at 141.37, and the 100 DMA at 140.79. Desks also eye 158.03 in EUR/JPY – a breach above would mark a fresh 15-year high. USD/CHF trades in a relatively tight 0.8718-55 range – still within yesterday’s 0.8714-73 parameter.

EUR, GBP

• Subdued trade is seen across the European majors, again a function of the Dollar, albeit losses are more modest vs the antipodeans. EUR saw little reaction to the ECB June Consumer Inflation Expectations survey which downgraded the 12-month and 3-year inflation forecasts among consumers – this could be somewhat outdated given the commodity price developments during July and the ongoing data-dependence of policymakers. Over in the UK, BoE’s Pill hit the wires yesterday after the European close and largely reiterated comments from last week.


• EUR/USD is contained in a 1.0972-1011 parameter, within yesterday’s 1.0964-1.1017 band – with option expiries for the pair today also far from the money. GBP/USD found resistance near its 10 DMA (1.2790) at 1.2785 before dipping under its 50 DMA (1.2749) to a current intraday low of 1.2739 – with yesterday’s low at 1.2711, and below that 1.2687.

CAD, NOK

• Petro-FX is unsurprisingly on the backfoot amid the risk-induced losses across the crude complex.


• USD/CAD rose from a 1.3362 low, above its 100 DMA at 1.3394, to a current session high of 1.3436 ahead of the 100 DMA at 1.3451. NOK is among the G10 laggards, in part due to its sensitivity to risk, with EUR/NOK rising from an 11.1470 low, above its 21 DMA (11.2166) to a current 11.2556 peak ahead of the 3rd of August high at 11.2854.

08 Aug 2023 - 09:51- ForexEU Research- Source: Newsquawk