US dollar holds steady

US dollar pares gains 

The US dollar spiked higher in overnight trading, the dollar index rising to 99.00 at one stage as US bond yields moved higher once again. Thereafter, the peak-risk rally by equities seems to have spilt over to currency markets, and the US dollar retreated, leaving the dollar index just 0.06% lower at 98.42. In Asia, trading is moribund, the index rising slightly to 98.45. The dollar index is holding near recent highs despite all the noise, and with intraday volatility making direction a turkey shoot, I will await a break of either 97.75 or 99.50 to signal the greenback’s next directional move. My money is still on further gains as reality bites.

EUR/USD has reclaimed 1.1000, rising to 1.1030 as of this morning, thanks to late New York US dollar weakness. EUR/USD remains midrange between critical long-term support at 1.0800, and resistance between 1.1150 and 1.1200. Short of a peace agreement arriving between Ukraine and Russia, the single currency will struggle to maintain gains above 1.1100 for now, especially with US yields on the move higher in Asian trading.

GBP/USD staged a sharp 0.70% rally to 1.3285 overnight, where it remains in Asia. Firm inflation data this afternoon could see markets pricing in backtracking on rate hikes by the BOE, sending it higher. GBP/USD has nearby resistance at 1.3300, followed by 1.3400, with support at 1.3125 and major support at 1.3000. Like EUR/USD, I have doubts about sterling maintaining gains over 1.3300.

USD/JPY continues to skyrocket higher, as good as an example of the effects of a widening US/rest-of-the-world rate differential as any. USD/JPY jumped 1.14% higher to 120.83 overnight, before rallying through 121.00 to 121.10 this morning. US yields continue rising in Asia, and the 10-year JGB is at 0.22%, approaching the BOJ’s upper band at 0.25%. That’s as good a reason as any to conclude that 122.00 will arrive sooner rather than later. Only a fall through 119.00 changes the bullish outlook.

AUD/USD and NZD/USD both booked one per cent gains overnight, riding the improved risk-sentiment wave higher. AUD/USD is trading at 0.7460, and NZD/USD at 0.6960. Both currencies are displaying inverse head-and-shoulders formations, bullish technical indicators. Having ridden the Ukraine commodity shock higher, both are maintaining their gains as that negative sentiment ebbs, ostensibly ebbs. That is another bullish indicator, but there is now a lot of good news built into AUD and NZD at these levels. I am cautious that we could have a potentially ugly pullback from these lofty heights before any upward resumption.

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