EUROPEAN FX UPDATE: Yen implodes as BoJ sources suggest no near term YCC tweak

Analysis details (10:10)

DXY/JPY

Having fended off multiple assaults against 140.00 barriers and then finding support at the 50 DMA (140.50) when resistance proved futile yesterday, the Yen failed to muster much of a fight at 141.00, or 141.16 that represented a 50% Fib retracement of the reversal in Usd/Jpy from June peak to July trough. Indeed, the headline pair blasted beyond 141.50 in short order towards 142.00 following source reports underscoring expectations that the BoJ will likely refrain from tweaking its YCT next week, and this in turn gave the Dollar more upside impetus and index enough thrust to top 101.000 a narrow miss on Thursday.

NZD/AUD   

A downturn in broad risk sentiment allied to the aforementioned Buck bounce undermined the Kiwi and Aussie as high beta currencies, with Nzd/Usd retreating from 0.6241 to sub-0.6200 and Aud/Usd unwinding more of its stellar jobs data gains between 0.6787-46 parameters even though the Yuan retained recovery momentum, albeit with another big helping hand from the PBoC. As an aside, though also influential in flow and directional terms, 1 bn option expiries at the 1.0900 strike kept the Aud/Nzd cross in check within 1.0893-70 confines.

CHF/EUR/CAD/GBP

The Franc drew some support from softer US Treasury yields as it held above 0.8600 vs the Greenback and the Euro remained on the 1.1100 handle as EGBs effectively tracked moves in USTs, unlike JGBs, while the Loonie meandered from 1.3154 to 1.3182 ahead of Canadian retail sales and before 1.1 bn option expiry interest between 1.3155-45 rolled off at the NY cut. Elsewhere, the already deflated Pound hardly had time to breathe a sigh of relief in wake of better than expected UK consumption figures from the ONS as Cable only just peered over 1.2900 and then recoiled when its US peer got a Yen-related boost to test the water below 1.2850. However, Sterling bounced a few pips from the 21 DMA that stands at 1.2836 today.

SCANDI/EM     

More fuel for the Nok as Brent pivoted Usd 80/brl, but the Sek sagged as the general market mood soured, the Try toiled to stay afloat post-CBRT irrespective of more detail surrounding the non-standard tightening measures (15% reserve requirement for FX-protected Lira deposits implemented and withdrawal of Try 450-500 bn liquidity via changes in reserves), and the Zar weakened in tandem with Gold. Conversely, the Cny and Cnh were underpinned by the latest PBoC fix, more stimulus and remarks from China’s FX regulator (Yuan flexibility is increasing along with market understanding of two-way fluctuation and risk-neutral. China will prevent sharp volatility in the exchange rate and keep the Yuan basically stable at balanced levels in a forceful manner, as well as comprehensively using policy measures to stabilise expectations).

21 Jul 2023 - 10:10- Fixed IncomeData- Source: Newsquawk