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Firmer Greenback Sees EURUSD Back Below 1.0200

FOREX
  • Dollar indices took their cues from a surging USD/CNH on Monday largely in response to overnight PBOC action on rates and the lower-than-expected Chinese economic activity data. Bullish momentum has been picking up for USDCNH in late trade following the break of the July and August highs around 6.7950. The pair is now trading up 1.12% at 6.8130.
  • Dampened risk sentiment bolstered safe haven demand for the greenback and despite lower US yields and recovering stock indices throughout the US session, the USD Index looks set to post a 0.85% advance to start the week.
  • Despite AUD and NZD being the weakest major currencies and both falling around 1.3%, the more notable price action has been in the Euro.
  • In the process of sliding back below 1.0200, EURUSD has reversed the entirety of the post US CPI gains and has notably rejected the previous breakdown area between 1.0341/59 that had been a strong inflection point earlier this year. Additionally, the pullback highlights - for now - a failure to deliver a clear break of the bear channel resistance, currently at 1.0326. With the 100 pip grind lower on Monday, the pair also narrows the gap with the Aug 3 low at 1.0123.
  • The softer single currency was noted last Friday with strong moves lower for some Euro crosses and lingering uncertainties regarding Europe’s energy crisis may be exacerbating the renewed weakness.
  • The main beneficiary of lower US yields was understandably the Japanese Yen. USDJPY was well off the 13360 highs approaching the US Empire Manufacturing data, however, the softer prints sparked a swathe of selling down to fresh lows of 132.56. The firmer dollar overall has led to a strong bounce for the pair back to levels close to unchanged, however, significant weakness is noted in the likes of AUDJPY (-1.61%) and EURJPY (-1.12%) with the latter now trading 300 pips off last week’s highs.
  • Highlight for Tuesday’s APAC session will be the RBA minutes before UK employment data and Germany’s ZEW sentiment release. Canadian CPI will be the focus for the North American session with US housing starts and IP to also be released.
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