US dollar in calm waters

US dollar trades sideways

Currency markets look like they have closed for the year now, with overnight trading featuring modest ranges unless you are trading Turkish lira. The dollar index is almost unchanged overnight, trading at 96.06 today. A daily close under 95.85 sets up a deeper US dollar correction, potentially into January, assuming omicron remains a storm in a teacup in the minds of the investors globally. The omicron-is-mild rally we’re seeing in the equity markets could well continue into January now, but reality will bite in February I believe, as the end of the Fed taper moves into sight. Still, it’s a perilous exercise to dismiss omicron, with the developing countries of the world at the mercy of further Covid variants.

EUR/USD has hardly moved, trading at 1.1330, but still faces resistance above 1.1360. Only a move above 1.1400 suggests a medium-term low could be in place. Improved risk sentiment, especially around omicron, given the UK caseload, appears to be lifting sterling. It has risen 0.45% to 1.3415. GBP/USD has recaptured 1.3400, signalling a medium-term low. Such is the Prime Minister’s unpopularity in the UK right now, if Boris gets the push over Christmas, sterling will likely rally once again. USD/JPY is at 114.30 today after US yields edged higher overnight.

The three risk-sentiment amigos, the CAD, AUD, and NZD continued booking modest gains overnight. A rise above 0.7250 for AUD/USD and 0.6850 from NZD/USD will signal further rallies into the new year. USD/CAD is at 1.2850 this morning and needs to close below 1.2750 to signal the same. Price action this morning has seen all three edges lower, suggesting that investors are trimming long positions into the holidays.

Asian currencies continue range trading as the PBOC once again set a weaker yuan fixing. The Asian interbank market looks to have closed shop for the year now. A stronger yuan continues to backstop Asian FX from negative sentiment shifts.

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