Higher US yields lift dollar
With risk concerns aplenty this morning, the US dollar index has risen 0.10% today to 92.26, after rising 0.12% on Friday, in a day marked by large ranges amongst DM currencies and very choppy trading. Although ignored by US stock markets, the rise in US treasury yields stopped the US dollar sell-off in its tracks, and abruptly reversed its course.
EUR/USD is almost unchanged at 1.1890 today, and although it may face some pressures from a stronger greenback this week, the breakout of its falling wedge formation is still very much in play. EUR/USD would need to fall through 1.1700 to invalidate its bullish technical outlook. Sterling’s outlook is somewhat cloudier, with vaccination fears and EUR/GBP buying continuing to pressure the cross. GBP/USD is at 1.3688 today, just above support at 1.3675, a triple bottom and its 100-day moving average (DMA).
USD/JPY remains in consolidation mode at 109.60, but both the Australian and New Zealand dollars appear to have run out of upside momentum, suggesting that peripheral risk concerns in currency markets have increased. AUD/USD hit a brick wall ahead of 0.7700 last week, and a loss of 0.7600 implies a retest of 0.7500. NZD /USD failed multiple times at 0.7070, and failure of 0.7000 risks a retest of the low 6900’s.
In Asia, those risk concerns are also making themselves felt. Although USD/CNY is steady at 6.5550 today, USD/KRW and USD/INR have spiked 0.45% higher, while USD/IDR has risen 0.35% to 14,625.00, through the central bank’s line in the sand at 16,500.00. The Thai baht has also fallen, with USD/THB increasing 0.30% to 31.563. Covid-19 will be driving the won, rupee and baht weakness, while the rise in US yields has had an immediate impact on the rupiah. I expect the central banks of all four countries to be in “smoothing” today.
The moves in the Australasians and Asian markets highlight the increased risk sensitivity over rising Covid-19 cases and the potential for higher US yields again this week. Investors ignore those warning signs at their peril, with complacency reaching record levels last week from the author’s point of view.