The carnage sweeping the crypto market spilt into other asset classes overnight, leading to a bout of risk aversion sweeping forex markets. The US dollar was, naturally, the prime beneficiary, the dollar index climbing 0.44% to 90.17. Like equities, Asian currency markets were cautious, with the index edging down to 90.13 as sentiment cautiously returns.
The risk proxy Australian and New Zealand dollars led markets lower, both falling nearly one per cent yesterday. But previous leaders like the euro and sterling also retreated. The Australian dollar tested and held its 100-DMA at 0.7727 overnight, rising 0.25% to 0.7750 today. A fall through 0.7680 signals the AUD/USD is not over. NZD/USD fell through its 100-DMA at 0.7180 overnight and is struggling to reclaim it. The kiwi looks the more vulnerable at the moment and could fall to 0.7000 if market nerves elsewhere remain elevated.
EUR/USD is trading at 1.2180, but its longer-term bullish technical picture remained intact above 1.2100. Similarly, GBP/USD has retreated to 1.4115, with only a loss of 1.4000, changing an otherwise very positive technical view.
With USD/CNY settled into a 6.4000 to 6.4500 trading range, for now, ignoring the noise in other parts of the currency space, Asian currencies retreated only modestly yesterday. USD/MYR has risen back above 4.1400 as Covid-19 cases high a daily record in-country. The virus situation is likely to limit any ongoing gains versus the greenback, even if they are proving resilient to inflation nerves.
The US dollar’s next directional move in the near term is likely to be decided by whether the crypto-rout continues or not and whether today's US data lets the inflation genie out to play again. Investors will be keeping an eye on Initial Jobless Claims and the Philly Fed Manufacturing Index for April. Weekly claims could dip below 450,000 this week, with the Philly Fed Index climbing above 50.0, setting another multi-decade high. Along with the US 10-year TIPS bond auction, improving data could give markets another little inflation nudge again.