The US dollar retreat continues

Dollar dips as tapering concerns ease

The US dollar fell once again overnight as hawkish inflation rhetoric from Europe lifted the euro, and US ADP and ISM PMI data reinforced expectations of a softer jobs print from the US tomorrow, adding credence to Jerome Powell’s apparently dovish Fed tapering outlook. The dollar index fell by 0.15% to 92.50, where it remains in Asia today. That hawkish euro-inflation lifted EUR/USD by 0.25% to 1.1840, and a rally through 1.1860 targets 1.1900. GBP/USD was dragged higher to 1.3775, but it once again failed at 1.3800. GBP/USD needs to overcome the 50 and 200-day moving averages (DMAs) at 1.3810 to swing the technical picture decisively bullish.

With US tapering fears receding, risk sentiment bell weathers, the Australian and New Zealand dollars outperformed. AUD/USD rose 0.70% to 0.7365 as of this morning and remains on track to test 0.7400 ahead of the US data. NZD/USD has risen by 0.30% to 0.7065 but must overcome the 100 and 200-DMAs at 0.7085 and 0.7115 to maintain upward momentum. A soft US Non-Farm Payrolls print tomorrow night should greenlight 200 point-plus rallies by both next week.

With USD/CNY holding steady once again at 6.4620, regional Asian currencies have been left to their own devices today. USD/THB and USD/KRW are 0.40% higher, with the rest of USD/Asia slightly higher for the session. After rallying powerfully for the last week or so, it looks like investors are trimming Asia FX long positioning into the US data. A softer Non-Farm print tomorrow (<750K) should allow Asian FX to resume its upward trajectory. With the US ADP and PMI data overnight signalling, employment remains subdued. Although not for employers not trying hard enough to hire workers, the market has decisively shifted towards the US Non-Farms coming in on the soft side of 750,000 jobs. That reinforces the market's preferred narrative of a later and slower taper, thus keeping the buy-everything rally's momentum going. Therefore, a surprise print above 900k is likely to have a greater impact. We could see a painful squeeze of short US dollar positions across both the DM and EM space in that scenario.

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