The dollar remains in ranging mode

US dollar in calm waters

The euro and sterling spiked overnight after ECB officials made hawkish comments, but the rally quickly ran out of steam. The weak consumer confidence and Chicago PMI data similarly failed to inspire a deeper US dollar retreat. Looking at the price action overnight, it seems that markets are content to play the range in the major currency space while waiting for the Friday Non-Farm release.

The dollar index fell 0.06% by the session’s end overnight but has reversed that today in Asia, climbing 0.10% to 92.74. I expect the index to trade in a 92.50 to 93.00 range until Friday’s data release. Today’s weaker regional PMIs appear to have sparked some US dollar short-covering in Asia.

EUR/USD briefly spiked 50 points to 1.1850 before returning to 1.1800, and GBP/USD spiked to 1.3805, its 200-day moving average (DMA), before returning to 1.3745, where it remains in Asia. Those two levels now form barriers to further rallies, and the price action overnight suggests that stronger US data prints this week could leave them vulnerable to another downward correction.

AUD/USD and NZD/USD have maintained their V-shaped recovery gains, trading at 0.7325 and 0.7050, respectively. Both currencies were lifting by falling New Zealand Covid-19 cases yesterday. Still, today’s data show an increase once again, which has flattened the exuberance but has not been enough, yet, to turn sentiment. Having said that, a rise through 0.7400 and 0.7100 by the down-under dollars suggests another 200 point rally by both is possible.

The USD/CNY is once again unmoved at 6.4615 today after almost unchanged basket components led to an uneventful fix. The PMI data has had little impact on USD/Asia today, which has mostly traded lower led by 0.25% rallies by the Malaysian ringgit and the Korean won. Asian currencies, it seems, are also content to remain on a shallow glide path into Friday’s US Non-Farm Payroll data.

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