On Friday, weak US consumer confidence data flowed through bond markets, sending long-dated yields lower and pulling the rug from under the US Dollar’s feet. The dollar index plunged by 0.51% to 92.52, climbing just a few points to 92.55 in Asia. With the edge being taken off the recent taper talk post-data, investors rushed to cut long US dollar positions into the weekend.
If nothing else, it emphasizes just how vital the trajectory of US rates is to the US dollar’s direction at the moment. How much legs the greenback’s sell-off will have is hard to determine right now, and we may get more answers from the FOMC Minutes later this week, notably the discussion amongst members over the timing, or not, of QE tapering.
In the shorter term, the US dollar looks vulnerable to further losses with no real chart support until 91.80. Short of a rapid escalation in global risk aversion, rallies towards 93.00 are likely to meet firm resistance.
G-10 currencies
EUR/USD leapt by 0.56% to 1.1795 on Friday, where it remained in Asia. Initial resistance was at 1.1805, followed by 1.1850 with support at 1.1730. GBP/USD rose 0.44% to 1.3870 before fading to 1.3848 in Asia.
Sterling had resistance at 1.3900, 1.3950 and then 1.4000, with support near 1.3800 and 1.3780, the 200-day moving average. (DMA) USD/JPY, as a pure US/Japan yield play, flopped 0.75% to 109.60 as US yields tracked lower. It retreated another 20 points to 109.40 in Asia as risk sentiment rose after China data and nerves about Japan’s virus situation.
USD/JPY closed below the 100 DMA at 109.70 on Friday, which became resistance. If US yields stay soft, USD/JPY could potentially retest 109.00, stopping out much of the speculative long-positioning of the previous week. The yen may also receive some haven flows this week, like the Swiss franc.
AUD/USD and NZD/USD both rallied on Friday but gave back much of those gains today, as risk sentiment in Asia sharply deteriorated after the softer China data releases. AUD/USD fell by 0.45% to 0.7338, as Australia’s virus lockdowns increased as well. AUD/USD failed at last week’s breakout of the rising wedge at 0.7375, which is now resistance.
The double bottom at 0.7315 was initial support, and failure could trigger another 100 points of losses to around 0.7200 to meet the wedge breakout target. NZD/USD should find more support on dips as the RBNZ is expected to hike rates this week. In the present climate, though, it will struggle to make consistent gains too. NZD/USD should trade in a 0.7000 to 0.7075 range to start the week. However, failure of 0.6990 could trigger a sell-off targeting 0.6900.
Asian currencies
Asian regional currencies fell versus the US dollar on Friday, with investors preferring to express US weakness via G-10 currencies. Asia’s ongoing virus concerns will dampen any positive response to better Q2 data, and until it resolves, Asian currencies will remain a sell on rallies. The Malaysian ringgit looked particularly vulnerable as Malaysia’s political crisis also deepens and oil prices remain soft. Conversely, the Indian rupee could outperform later today after PM Modi’s weekend infrastructure package announcement.