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USD Index Retreat Halted By Stronger US Data

FOREX
  • The Dollar Index spent the first half of Wednesday’s session on the retreat as global risk sentiment was lifted by news of the 50bp RRR cut in China. However, firmer-than-expected US PMI data provided some late support for the greenback, with the DXY’s decline moderating to just 0.5% as we approach the APAC crossover. The pullback comes ahead of key US growth data on Thursday, the final major release before the January FOMC meeting.
  • Volatility for the Japanese Yen in the aftermath of the Bank of Japan decision on Tuesday continued, with USDJPY establishing a 174-pip range today. Largely shadowing the moves in the broader dollar index, lows of 146.66 were put in shortly before the US PMIs before consolidating to levels around 147.40 at typing. Key short-term support has been defined at 144.36, the Jan 12 low and clearance of this level would be required to signal a top.
  • The Swiss Franc is another notable performer on the session, rising 0.81% against the greenback, dragging EURCHF down back down to the prior breakout level around 0.9400.
  • As noted on Tuesday, HSBC recently put out a note stating that the SNB's language around the currency has become more balanced, and some data points might be signalling a return to FX reserves accumulation. However, HSBC note a shift away from a "strong franc" policy does not automatically mean a preference for a "weak franc". They continue to see EUR-CHF grinding slightly lower in 2024 to 0.93.
  • A slightly less hawkish Bank of Canada prompted the Canadian dollar to underperform its peers. The combination of the BOC developments and the stronger US data saw USDCAD rise around 60 points to 1.3500.
  • Overall USDCAD maintains a firmer tone, working in favour of the latest shallow pullback proving technically corrective. Last week’s gains resulted in a move above the 50-day EMA, at 1.3459, confirming an extension of the bull cycle that started Dec 27. This opens 1.3538, 50.0% of the Nov 1 - Dec 27 bear leg.
  • Both Norges Bank and ECB meetings take focus on Thursday. The US sees the Q4 advance release for GDP before the monthly PCE report for December on Friday.
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