Currencies basking in calm waters

Currency markets ranging

Today, equity patriotism is absent from currency markets, which have contented themselves to range quietly after a non-descript session on Friday. The falls on Wall Street, and a slight rise in US yields saw haven flows push the greenback modestly higher, the dollar index rising 0.14% to 90.60. The index has eased slightly to 90.54 this morning, leaving it still anchored in the middle of its 90.00/91.00 range.

Despite the quiet session, the technical picture still points to further US dollar strength on several fronts. USD/JPY closed at 104.90 on Friday, well about its multi-month downward channel, and well above its 100-day moving average at 104.45. That suggests further gains in the days ahead targeting the 106.00 region. EUR/USD is only 70 points away from critical support at 1.2060, with failure signalling a material correction lower, targeting the 1.1900 area initially.

In the cyclical commodity currency space, AUD/USD held its uptrend at 0.7600 on Friday but has only rallied to 0.7650. A failure of 0.7600 opens up losses to 0.7400 initially. USD/CAD tested its 10-month downtrend line at 1.2870 on Friday before retreating to 1.2765 this morning. A rally through 1.2870 targets 1.3000 and could extend to 1.3400 if the US squeeze gets messy. NZD/USD has risen to 0.7195 this morning, with no new community Covid cases, and boosted by an enhanced China trade deal signed last week. Critical support lies at 0.7110, and failure targets the 0.6900 area initially.

USD/CNY has risen today, after the PBOC added 100 billion CNY to the system, pushing down the overnight repo rate although the 7-day repo rate remains elevated. USD/CNY has risen 335 points to 6.4585 today as funding squeeze fears receded, with the Biden stimulus package out of the headlines for now.

USD/CNY has a series of daily highs at 6.5000, which form critical resistance. A daily close above 6.5000 opens further gains to 6.6000 initially, and if the CNY finally cracks, regional Asian currencies should follow.

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