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EUR / USD

 

The Euro was on the defensive in early Europe on Friday with dollar strength continuing to dominate currency markets as risk appetite remained extremely fragile

ECB council member Villeroy stated that the central bank is attentive about the exchange rate, but with little net impact.

According to the preliminary September reading, the University of Michigan consumer confidence index recovered to 59.5 from 58.2 the previous month, but slightly below consensus forecasts of 60.8. The current conditions index increased marginally to 58.9 from 58.6 and below expectations while the expectations index posted a stronger recovery to 59.9 from 58.0 previously. The inflation components had a more significant impact. The 1-year inflation expectations index declined to 4.6% from 4.8% previously while the 5-year expectations index edged lower to 2.8% from 2.9%.

The dollar edged lower following the data with future markets indicating that the possibility of a 100 basis-point rate hike at this week’s meeting had declined to just below 20%. The Euro found support close to 0.9950 and rallied into the London fix with a move back above parity.

CFTC data recorded a sharp decline in short Euro positions to just under 12,000 contracts from 36,000 previously and the smallest short position for over two months

In its latest monthly report, the German Bundesbank stated that the economy is contracting already and is likely to get worse during the winter with a more serious impact from gas shortages. It added, however, that it does not expect the adverse scenario published in June, which warned of a 2023 GDP contraction of 3.2%, to materialise. The Euro dipped to lows near 0.9970 in Europe on Monday before edging back to parity as the dollar retreated. The Euro held above parity on Tuesday, but retreated from highs of 1.0050 to trade around 1.0020 as Euro-Zone reservations continued with caution ahead of Wednesday’s Fed decision also significant.

 

JPY

 

There was choppy trading in Treasuries after the US consumer confidence data, but yields overall edged lower on the day which limited scope for fresh dollar buying. There was also an element of yen short covering and the dollar dipped below the 143.00 level.

CFTC data recorded an increase in short yen positions to a 3-month high of over 80,000 contracts, maintaining the potential for short covering.

The US NAHB housing index edges lower to 46 for September from 49 previously and the lowest reading since May 2020. The 10-year yield increased earlier to highs just above 3.50% and the highest level for over 12 years before a retreat to around 3.45%. The dollar overall posted highs around 143.65 before a retreat to 143.30.

China left benchmark interest rates unchanged at Tuesday’s announcement. There are also expectations that the Bank of Japan will maintain a very loose monetary policy despite currency weakness and global tightening. The dollar traded around 143.33 in early Europe with the Euro just above 143.50.

 

GBP

 

Sterling came under sustained pressure on Friday following the weaker than expected reading for retail sales. Confidence in the UK economic outlook deteriorated and there were also further doubts whether the Bank of England would be in a position to sanction a substantial monetary tightening given economic vulnerability.

With other central banks maintaining a hawkish stance, the UK currency would struggle to gain support from yield spreads.

Overall risk appetite was notably vulnerable which undermined support for the UK currency. A break below 1.1400 against the dollar triggered another wave of selling with a slide to fresh 37-year lows close to 1.1350. Sterling did manage to recover some ground after the New York open with a tentative move back above 1.1400.

CFTC data recorded an increase in short Sterling positions to just over 68,000 contracts in the latest week from 50,000, the largest short position for over 3 months.

Sterling again found support just above 1.1350 on Monday and recovered to the 1.1400 area with UK markets closed for a holiday while the Euro posted 19-month highs above 0.8785 before correcting slightly. The UK currency held just above 1.1400 on Tuesday with the Euro around 0.8770 ahead of major events this week.

 

CHF

 

There was further speculation that the Swiss National Bank would hike interest rates by 75 basis points at the September policy meeting.

The franc was subjected to a correction during the day with the Euro rallying to 0.9650 from lows around 0.9580 while the dollar secured a limited net advance to 0.9640.

The franc edged lower on Monday as markets monitored global yield trends with the dollar peaking close to 0.9700 before a retreat to around 0.9660.

The dollar consolidated around 0.9660 in early Europe on Tuesday ahead of key monetary policy decisions this week.

 

Technical Levels 

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Calendar

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Contents

Disclaimer

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