Currency markets continue sideway trading

US dollar steady ahead of Powell testimony

With the notable exception of the Japanese yen once again, currency markets refused to buy into the snake oil promises of the equity markets. The US dollar did push lower intraday across the board but recovered as US yields held firm. The dollar index finished almost unchanged at 104.42, edging higher to 104.60 in Asia, as equities sink. ​ The dollar index has support at 1.0350 with resistance now distant at 1.0570.

EUR/USD rose just 0.22% to 1.0535 overnight, an intraday rally fading ahead of 1.0600 once again. In Asia, risk sentiment has soured, sending the single currency 0.22% lower to 1.0510, unwinding the overnight gains. It has initial resistance at 1.0600, with challenging resistance at 1.0650. Support is at 1.0450 and 1.0400. Sterling rose just 0.25% to 1.2280 overnight, unwinding that move and falling 0.30% to 1.2240 in Asia. GBP/USD has initial resistance at 1.2360 and 1.2400, with support at 1.2200 and then 1.1950.

USD/JPY was the big mover in the DM space overnight, rocketing 1.15% higher to 136.65, a 24-year high. In Asia, it has fallen 0.35% to 136.20 after some belligerent comments about currency moves by the Bank of Japan. The Bank of Japan minutes though reveal the committee is comfortable with monetary policy settings, and although not happy with the yen vol, is not hitting the panic button at all. US yields firmed overnight, boosting USD/JPY, and although I don’t rule out some nasty downside corrections, they are likely to be short-lived in the current environment. Only a sharp, and I mean sharp, fall in US yields is likely to stop the USD/JPY rally. ​ USD/JPY has support at 135.00 and 134.50, with resistance at 136.65 and 138.00.

AUD/USD and NZD/USD booked modest gains overnight but have slumped today as risk sentiment has soured. AUD/USD has fallen 0.60% to 0.6930, and NZD/USD has slumped 0.95% to 0.6275. While supports at 0.6850 and 0.6200 hold respectively, further gains to 0.7150 and 0.6450 cannot be ruled out, but both down under dollars remain as tied to swings in investor sentiment as ever.

Asian currencies saw no sentiment-driven gains overnight, and in fact, most post small losses versus the US dollar. Another warning sign that the overnight Wall Street rally was a solitary rear-guard action. With the US dollar strengthening today, Asian currencies are in retreat. USD/KRW, USD/CNH, USD/CNY, USD/INR and USD/PHP have all gained around 0.40% this morning. A hawkish Jerome Powell this evening, with reinforcement from the other Fed speakers could prelude more Asian FX weakness, and I wouldn’t be surprised to see the Bank of Korea, Bank Indonesia and the BSP Manila all intervening tomorrow.

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