EUROPEAN FX UPDATE: Yen resurgence unrelenting and far reaching

Analysis details (10:21)

JPY/DXY

The Yen may not carry most weight in the Dollar index, but the sheer scale and speed of its recovery continued to exert disproportionate pressure on the DXY and across the board via Jpy crosses. Indeed, Usd/Jpy reversed sharply from 134.67 to test 132.50 in almost flash crash trade and following the breach of more chart points and psychological levels, including full and half round numbers that are popular locations for Japanese importers to lodge underlying bids. Technicals and downside momentum aside, the Yen is benefiting from a broad short squeeze on the premise that BoJ-Fed and other global Central Bank policy divergence look less likely to keep widening. Indeed, US rate expectations have been scaled back markedly on the back of less hawkish FOMC guidance and yesterday’s contractionary US GDP data to the detriment of the Buck independently and the index is now struggling to keep tabs on 106.000 within a 106.250-105.530 range. However, core PCE, ECI and or Chicago PMI could throw the Greenback a lifeline if stronger than expected.

NZD/AUD/CHF/EUR

All firmer vs their US counterpart, albeit off peaks with the Kiwi holding near 0.6300 and the Aussie sticking close to 0.7000 amidst bullish risk sentiment, while the Franc tested bids and support into 0.9500 and the Euro had yet another chew at offers in the region of 1.0250. Aud/Usd might also be underpinned ahead of the RBA next Tuesday and Eur/Usd got several stronger than forecast Eurozone macro releases to lean on, but Aud/Jpy, Eur/Jpy and Eur/Chf remain top heavy, as the latter eyes 0.9700 to the downside due to ongoing Russian gas supply concerns. Note also, hefty option expiry interest may be capping Eur/Usd as 1.28 bn sits at 1.0245 and 1.8 bn at 1.0250.  

CAD/GBP

The G10 laggards, but still holding the bulk of their gains against the Greeback as the Loonie straddles 1.2800 against the backdrop of firm oil prices and Sterling swings either side of 1.2200 in wake of mixed BoE consumer credit, mortgage lending and approvals that has contributed to a firmer Eur/Gbp bounce given the aforementioned EZ data beats.

EM

Some respite for the Huf as Hungarian PM Orban expects a further deal on Russian gas supplies to be signed in the summer, while the Try stopped the rot not far from 18.0000 vs the Usd following a narrowing in Turkey’s trade deficit and newswire reports that Russia is transferring Usds to Turkey for a Usd 20bn nuclear facility. Elsewhere, more upside in Gold and the Zar, while the Cnh and Cny are resilient in the face of downbeat commentary from China’s Commerce Ministry overnight  - foreign trade faces higher risks, the outlook for H2 is not optimistic and the foundation for a consumption recovery is not solid yet.

29 Jul 2022 - 10:21- Fixed IncomeData- Source: Newsquawk