The US dollar sell-off resumes

US dollar under pressure as US stimulus talks resume

The US dollar fell on Friday, as investors moved into more pro-cyclical positioning as they continue to assume a new fiscal stimulus deal will get across the line. The US dollar index fell 0.55% to 93.06, not far from support at 92.75. That saw both euro and sterling enjoyed positive sessions, the EUR/USD regaining 1.1800, on its way to 1.1830. GBP/USD recaptured 1.3000, on its way to 1.3030. GBP/USD, in particular, is looking very positively technically, but also has the greatest reversal risk; ahead of new Covid-19 measures announcing today and Brexit risk on Thursday.

USD/JPY has failed at 106.00 and is at 105.50 this morning, with its next support at 105.00. It now sits in the middle of its 104.00 to 107.00 three-month range, which looks set to contain moves still for the rest of the month. The NZD/USD negated its bearish technical structure, rising 1.40% to 0.6670 as Saturday’s coming election looks to be a certain landslide for the incumbent Labour party, and a positive risk environment generally in markets. AUD/USD also allayed correction fears, rising 1.0% to 0.7230. It sits in the middle of its two-month 0.7000 to 0.7400 range. The balance of risks now shifts towards a test of the top of that range.

Asia has shrugged off the fall in the Chinese yuan this morning, preferring to concentrate on a rebounding China economy and US stimulus hopes. The Singapore dollar, Indian rupee, Thai baht and Philippine peso are now all near one-month highs and poised for further gains. Yuan appreciation is also likely to resume after the impact of the PBOC’s measures runs its course today, further boosting regional currencies this week.

Only the Indonesian rupiah and Malaysian ringgit are lagging. USD/IDR remains near 14,700.00, just below the Bank Indonesia’s 15,000.00 line in the sand. It will likely stay on the softer side until the BI’s rate announcement on Monday. The ringgit is underperforming its regional peers, but not markedly so. The fall of the USD/MYR has stalled at 4.1360 ahead of political risks in Malaysia this week. In the bigger picture, though, the ringgit’s 6-month appreciation trend remains very much intact, even if it has a few hiccups this week.

Overall, the US dollar looks set to start the week on a weaker note, as markets continue to ignore US election risk and price in a US fiscal stimulus solution to the detriment of any other view. The US dollar could abruptly rally on a fiscal disappointment, but until that is confirmed beyond all doubt, lower is the path of least resistance.

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