EUROPEAN FX UPDATE: USD continues to lose ground, EUR/USD reclaims 1.04 for the first time since early July

Analysis details (09:10)

USD

After posting modest gains yesterday, the DXY has given way to further selling pressure with the index hit relatively hard ahead of the European cash open. With no clear fundamental catalyst behind the move, the DXY fell from around 106.70 (vs. overnight peak of 107.05) to an eventual trough of 106.08 after taking out Monday's and last Friday’s lows of 106.47 and 106.27 respectively. The downside trend has been one that was put in place following last week’s CPI release with hawkish musings from Fed’s Waller over the weekend unable to prop up the greenback. It’s worth noting that comments yesterday’ from Fed Vice-Chair Brainard adopted a more “dovish” slant with the policymakers suggesting that although there is more work to be done, the Fed will likely soon move towards a slower pace of hikes. Markets will subsequently be parsing further Fed interjections with today’s slate including 2022 voters Barr & Cook and 2023 voter Harker. From a data perspective, today’s PPI release will draw close scrutiny given the fallout from last week’s CPI report. From a technical perspective, if the DXY breaches 106 to the downside, the August 15th low of 105.54 will come into view. Desks remain cynical over whether the DXY could see a meaningful breach of 105.

JPY

USD/JPY has been touted by some as a key driver of the softer USD with the pair slipping from just above the 140 mark to a session low around 139.20 in relatively quick order. Given the lack of clear news driving the move, there have been some murmurings of possible intervention but it is hard to see whether this is a case of attempting to fit the move to the news, particularly given how much the pair has pulled back from its recent peak. From an economic perspective, updates from Japan have been concerning with Q3 GDP unexpectedly slipping into contraction whilst COVID cases exceeded 100k for the first time in two months. Technically, if USD/JPY slips below 139, yesterday’s low stands at 138.51 with Friday’s trough at 138.46.

EUR, GBP

EUR was a beneficiary of the softer USD with the pair breaching 1.04 for the first time since early July to print a high of 1.0417 with technicians now flagging the 200DMA at 1.0428 ahead of German ZEW data. The softer USD was able to provide cable with a firmer footing above 1.18 with the pair advancing to a high of 1.1842 vs. an overnight low 1.1742 with Friday’s multi-week peak at 1.1855. UK jobs figures saw an unexpected uptick in the unemployment rate to 3.6% from 3.5% whilst wage metrics were firmer than expected. Focus ahead for the UK will fall on tomorrow’s CPI data and Thursday’s Autumn statement which will see Chancellor Hunt attempt to convince markets of his plans to plug the UK’s fiscal blackhole.

CNY, CNH

The Yuan continues to remain a key focus for markets as the pullback in USD/CNY moves ever-closer to the 7.00 mark which is seen as a key test for the pair’s recent move to the downside. The pair was able to shrug off a contraction in retail sales and sub-forecast IP metrics with the broader move in the USD acting as a guiding force for prices. The COVID situation in China remains a major headwind for the economy, however, soundings from policymakers continues to try and lean in a more encouraging direction in the wake of actions taken on the property sector over the weekend. Markets continue to digest the Xi-Biden summit, however, the comms thus far have not deviated from the pre-meeting briefings seen in the press. 

SEK, AUD

Swedish inflation metrics fell short of market and Riksbank expectations with CPIF Y/Y at 9.3% vs. Exp. 9.6%. EUR/SEK saw little follow-through from the data, however, the release will be a key input into next week’s rate decision with the Riksbank expected to dial back its pace of hiking from 100bps with 75bps currently priced at around 73%. SEB has stuck with its call for a 75bps move, however, given the firmer-than-expected core metrics, suggest that the risk of a 100bps hike has increased. Elsewhere, AUD is one of the better performers in the G10 FX space with the pair making a fresh two-month high of 0.6763.

15 Nov 2022 - 09:10- ForexData- Source: Newsquawk