Currency markets range-trade overnight

Will US dollar resume downward correction?

Currency markets range-traded overnight, with very little to show in either the G-10, Asia FX, or EM space. The technical picture on the dollar index, however, is testing the bottom of its rising wedge, and it is shouting that the US dollar correction lower still has legs. Overnight, the dollar index finished almost unchanged at 106.48 but has moved through the wedge support at 106.40 today, falling 0.18% to 106.29. A daily close under 106.40 signals more losses towards 1.0500 and 1.0350, and it could extend to the 102.50 long-term breakout point. Resistance is at 107.00, 107.30 and 108.00.

EUR/USD was flat at 1.0230 overnight, gaining 0.15% to 1.0237 in Asia. Russian gas woes could limit gains despite the technical picture being constructive. It has resistance at 1.0275, but only a sustained break above 1.0360 would suggest a longer-term low is in place. EUR/USD has support at 1.0150 and 1.0100.

GBP/USD edged 0.35% higher to 1.2040 overnight, rising to 1.2065 in Asia. Sterling has support at 1.1900 and 1.1800, with resistance taken out at 1.2060 today, followed by 1.2200. A close above the 1.2060 wedge formation signals a larger rally to the 1.2400 regions, but it would take a sustained break above 1.2400 to call for a longer-term low by sterling.

With US yields moving sideways overnight, USD/JPY drifted 0.40% higher to 136.65 overnight, where it remains in Asia. A loss of 135.50 sets the scene for a larger downside correction, potentially reaching 132.00. Initial resistance is distant at 138.00, followed by 139.40. The US/Japan rate differential continues to hold USD/JPY in its thrall.

AUD/USD and NZD/USD rose modestly overnight to 0.6960 and 0.6265, where they remain in Asia. ​ They continue consolidating their respective topside wedge breakouts. Only a move back below either 0.6800 or 0.6150 changes the short-term bullish technical outlook. Like AUD and NZD, the Asian FX space was almost unchanged overnight and is in a holding pattern ahead of the main events for the week, starting with US tech earnings this evening.

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