EUROPEAN FX UPDATE: Yen recovery rally continues and high betas bid

Analysis details (10:28)

JPY/DXY

The Yen, Dollar index and Buck more broadly remain inextricably linked, while the Greenback is also feeling the heat from those currencies with a rate premium or a discount that is about to get narrower. Indeed, the DXY attempted to bounce from a moderately higher low to retest resistance around 106.00 following hawkish comments from former Fed dove Kashkari who exclaimed surprise that markets think the FOMC will begin to back off soon and thinks 50 bp rate hikes at upcoming meetings seem reasonable. Moreover, if core inflation continues to rise it could push him to think that another 75 bp move is needed and he doesn’t know what the bond market is looking at in terms of reaching the conclusion that the Fed may even begin to cut rates next year. However, the reprieve was short-lived as the index came under further pressure and slipped to a new sub-105.500 cycle low and Usd/Jpy retreated even further through various Japanese importer bids from 133.50+ to within single digits of 132.00 as bears drew more encouragement via latest weekly CFTC data showing some paring of IMM spec Dollar longs and Yen shorts, but the latter still the biggest oversold position on balance.

AUD/NZD

The activity currencies are taking advantage of their US peer’s ongoing demise or rubbing more salt in the Greenback’s wounds as the Aussie gains traction on the 0.7000 handle against the backdrop of firm iron ore prices and irrespective of unexpectedly soft or outright weak Chinese PMIs (official NBS headline manufacturing down to 49.0 from 50.2 and vs 50.4 forecast). Meanwhile, the Kiwi climbed firmly above 0.6300 as Aud/Nzd held in the low 1.1100 area ahead of the RBA and NZ jobs data on Tuesday.

GBP/EUR

Also benefiting from Buck weakness, with Sterling hardly troubled by a minor downward tweak to the final UK manufacturing PMI and the Euro largely ignoring somewhat mixed Eurozone surveys that somehow culminated in an uptick to the pan print. Cable is back over 1.2200 and Eur/Usd is eyeing recent peaks beyond 1.0270 even though the Eur/Gbp cross dipped back below 0.8400.

CHF/CAD/SEK/NOK

The major laggards or underperformers, and for the Loonie and Norwegian Crown declines in crude oil are not helping, while the Swedish Krona was hampered by a slowdown in the manufacturing PMI and the Franc was undermined by a further rebound in bond yields on Swiss National Day. Usd/Chf was elevated around 0.9500, Usd/Cad straddled 1.2800, Eur/Sek probed 10.4000 and Eur/Nokrebounded through 9.9000.

EM

Upside in Usd/Cny and Usd/Cnh in wake of the aforementioned worrying Chinese PMIs, but Usd/Zar remained in a downward trajectory as strength in Gold more than offset a sub-50 SA manufacturing PMI.

01 Aug 2022 - 10:28- Fixed IncomeData- Source: Newsquawk