Currency markets consolidate

US dollar trading sideways

Currency markets were content to leave the equity FOMO gnomes to chase their tails overnight, while currencies traded sideways ahead of US inflation data tonight. The dollar index is almost unchanged over the past 24 hours at 103.80 this morning. ​ A daily close above 104.00 will signal rapid gains to 105.00 and in the bigger picture, the technical picture still says a multi-month rally to above 120.00 is possible. Support lies at 103.50 and 102.50.

Likewise, EUR/USD and GBP/USD are almost unchanged over the past 24 hours, trading at 1.540 and 1.2335 today. A move above 1.0600 or 1.2400 could see a further short squeeze worth another 100 points, but the overall technical picture remains very bearish. Only a sharp fall in US inflation tonight changes the picture temporarily.

USD/JPY is trading sideways at 130.35 today with the price action most notable overnight for the fact that USD/JPY did not fall with longer-dated yields. In the short end, 2-years were almost unchanged and that is perhaps where we should look for directional signals in the near term. Overall, the US/Japan rate differential and technical picture suggest further USD/JPY appreciation is a matter of when, and not if.

AUD/USD and NZD/USD have consolidated at the bottom of their ranges these past two days. AUD/USD is at 0.6960 today, with NZD/USD at 0.6305. Of the two, the NZD/USD looks most vulnerable to further losses, but both are being buffeted as risk-sentiment indicators. Failure of 0.7300 or 0.6250 will signal another move lower is beginning.

The Asian currency space was quiet overnight, prices moving sideways. Much the same price action has been seen in Asia today and it appears that the US inflation data tonight will be the next directional spark. Lower inflation should be Asia FX supportive, while higher inflation will be negative for Asian currencies. The Malaysian ringgit could see some volatility this afternoon over the BNM policy decision. It could move sharply higher if BNM surprises with a hike.

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