EUROPEAN FX UPDATE: Dollar defies bearish month-end dynamics into FOMC

DXY The Buck bounced further amidst another downturn in broad risk sentiment and irrespective of any last minute fine-tuning for portfolio rebalancing over the turn, with the index establishing a firm base on the 102.000 handle to probe a pivotal, if not technical level in the form of a recent peak, at 102.550 (from January 20). To recap, this was the high before the demise to new 101.500 y-t-d low, so significant from a price and momentum perspective rather than chart standpoint. However, the DXY stalled at 102.610 from a 102.110 low and the Greenback ran into round number or psychological resistance against several G10 counterparts inside and outside the basket as the clock ticked down to day one of the latest Fed policy meeting, US ECI data and consumer confidence.

AUD/NZD/CAD Much weaker than forecast final retail sales more than offset any positives via unexpectedly strong Chinese PMIs for the Aussie that retreated further vs its US and NZ rivals, towards 0.7000 and through 1.0900 at one stage respectively. Nevertheless, the Kiwi also lost more ground relative to its US peer around the 0.6450 axis and the Loonie retreated from above 1.3400 to sub-1.3450 ahead of Canadian GDP for the month of November.

EUR/GBP/CHF The Euro largely shrugged off bleak German consumption data with some mitigation given the fact that import prices exceeded expectations, but Eur/Usd tested underlying bids into 1.0800 in the aftermath of preliminary French inflation readings that were in line or a bit below forecast to douse the flames from Monday’s scorching Spanish metrics. In similar vein, the Pound peaked around 1.2370 and subsequently got to within single digits of 1.2300, even before significantly worse than anticipated BoE consumer credit, mortgage lending and applications, while the Franc failed to get any therapy on the way to 0.9288 from circa 0.9238 as Swiss retail sales declined twice as fast last month compared to November.

JPY Softer US Treasury yields and the aforementioned risk aversion may have propped up the Yen along with retracement after buying into the Tokyo fix overnight in Usd/Jpy and crosses. Moreover, the headline pair could have waned on semi-psychological grounds having been capped close to 130.50, or fundamentals as Japanese retail sales and ip both surprised to the upside. Usd/Jpy based just over 130.00 awaiting the FOMC on Wednesday and with passing interest provided by Japan’s manufacturing PMI in the interim.