EUROPEAN FX UPDATE: USD gives back some of yesterday's pronounced gains

USD: DXY -0.2%; 108.96

• USD is giving back some of yesterday's gains vs. peers with DXY returning to a 108 handle after topping out @ 109 yesterday (highest since November 2022). That being said, ING highlights the positive seasonality for DXY in January and February and therefore a turnaround for the USD would require a "U-turn in that narrative that has kept the dollar strong into year-end". For today's data docket, focus will be on the December ISM manufacturing print which is expected to remain in contractionary territory @ 48.4. Elsewhere, markets will be awaiting the outcome of the US House speaker vote (could hit around 17:00GMT, according to NBC).

EUR: EUR/USD +0.3%; 1.0297

• EUR has managed to claw back some lost ground vs. the broadly softer USD but is yet to undo a bulk of the damage yesterday which saw the pair slip from a 1.0375 peak to a 1.0224 low (lowest since November 2022). Fresh fundamentals for the EZ remain light ahead of next week's EZ HICP release. However, in the interim, it is worth noting that ECB's Lane is due to speak on "Geopolitical Fragmentation" at 16:00GMT. Technicians note that if selling resumes in EUR/USD, the next big level to watch will come via the 61.8% fib of the 2022-23 increase @ 1.0196.


• 
  EUR/USD opex: 1.0200 (1.72bln), 1.0250 (1.93bln), 1.0275 (235mln), 1.0300 (3.41bln), 1.0350 (665mln), 1.0360-70 (876mln), 1.0400-10 (886mln), 1.0425 (633mln), 1.0450-55 (782mln), 1.0500-15 (917mln), 1.0575 (759mln).

JPY: USD/JPY -0.3%; 157.11

• Japanese-specific newsflow remains on the light side with Japan away from the market overnight. As such, the USD leg of the USD/JPY pair has been doing a bulk of the heavy lifting and therefore the broadly softer USD has dragged the pair lower. That being said, the pair has been unable to return to a 157 handle after delving as low as 156.44 yesterday.

GBP: GBP/USD +0.2%; 1.2403

• GBP is attempting to reverse some of yesterday's heavy selling pressure which dragged the pair from a 1.2540 peak to a 1.2353 low. Whilst there was no specific catalyst for yesterday's price action, desks pointed to a reversal of last year's relative outperformance of the GBP vs. peers (ex-USD) and soft UK growth data which has led some to question if the BoE will need to be more aggressive than currently assumed by the market.

Antipodeans: AUD/USD +0.2%; 0.6215. NZD/USD +0.5%; 0.5605

• Both firmer vs. the broadly weaker USD with AUD managing to overlook losses in iron ore. Newsflow for both has been light, however, attention was on events in China overnight amid reports of support measures from China's state planner. Also of note was the depreciation of CNY which took USD/CNY above 7.3 for the first time since 2023. AUD/USD has made its way back onto a 0.62 handle with yesterday's peak @ 0.6220 within touch distance; if breached, the 31st December high kicks in @ 0.6231. For NZD/USD the pair has moved back onto a 0.56 handle but is yet to approach yesterday's 0.5645 peak.

03 Jan 2025 - 09:55- ForexEU Research- Source: Newsquawk