Currency markets continue to range trade

US dollar remains choppy

US yields climbed higher overnight which was enough to lift the dollar index to a 0.20% gain to 102.55. It has given most of that back in Asia, falling to 102.40 thanks to a modest yen rally. Another inconclusive session leaves support/resistance at 101.30 and 102.70.

EUR/USD edged higher to 1.0715 overnight, adding another 0.15% to 1.0730 in Asia as JPY strength has spread, once again, to the broader FX market in Asia today. Resistance is between 1.0770 and 1.0830 remains a formidable barrier, while support remains at 1.0650. The outcome of today’s ECB meeting will set the tone for the single currency for the rest of the session.

Sterling fell 0.45% to 1.2535 overnight as economic worries, leadership concerns, and the Northern Island protocol weighed on the sterling. Like the other majors, it remains in a choppy range-trading scenario overall. Resistance remains at 1.2670, 1.2800, and 1.3000. Support is still at 1.2460 and 1.2400.

It was another feeding frenzy by USD/JPY overnight, by far the highlight in an otherwise dull night for currency markets. The disparity between US and Japan monetary policies was once again brought to the fore. USD/JPY leapt by 1.22% to 134.25 overnight. In Asia, nerves around invention have spurred some long-covering, pushing it slightly lower to 133.95. The Relative Strength Index (RSI) is overbought, but not grossly so, so I do not foresee an aggressive move lower just yet, that may have to wait for 135.00 to trade.

Although I can see an increase in rhetoric about the currency from Tokyo increasing, I do not believe we are close to intervention by the authorities at all. A far more likely occurrence would be some sort of tinkering with the BOJ’s yield curve control policy. Given the vehemence around no change from the BOJ and MOF, that would be a huge surprise as well (“Huge surprise” used for the 3^rd time, danger Will Robinson!) A move by the BOJ in this regard would provoke an ugly washout of USD/JPY long positioning, potentially targeting 125.00. In the meantime, it is business as usual. Support is at 132.65 with the next upside target being 135.00.

Both AUD/USD and NZD/USD fell once again overnight, and I will admit to some confusion over the recent price action. AUD/USD fell 0.55% to 0.7190, easing to 0.7180 in Asia. NZD/USD fell 0.65% to 0.6445 where it remains in Asia. Although the reason behind the negativity eludes me, the technical picture is becoming more soggy than a wet piece of paper. Both currencies have broken below ascending one-month trendlines. Failure of 0.7150 and 0.6425 respectively, suggests another material move lower is occurring.

USD/Asia continues to range trade, with regional currencies almost unchanged today after a directionless New York session. Ominously, the Indian rupee shrugged off a 0.50% rate hike by the RBI yesterday and the USD/INR is trading at 77.678, near its highs for the year. Similarly, USD/MYR, USD/THB and USD/PHP are all closing in on their year’s highs again. The rally in oil prices could also cause USD/KRW to play catchup and appears to be weighing on all four. A higher than expected US CPI number tomorrow could complicate that picture further, lifting Fed hiking expectations.

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