Powell testimony weighs on US dollar
The Powell-inspired risk sentiment rally overnight saw US yields edge lower and weighed heavily on the US dollar, which staged a broad retreat. The dollar index fell 0.36% to 95.60, just above support at 95.50. The US inflation data tonight will either confirm a period of US dollar weakness or result in a nasty whipsaw price action. In the meantime, I wait patiently for a daily close above or below 95.50 or 96.50 to signal the US dollar’s next directional move.
EUR/USD and GBP/USD gained around 0.40% to 1.1370 and 1.3640, where they remain unchanged in Asia. EUR/USD needs to close above 1.1400 to lessen the bearish outlook. However, GBP/USD has closed above 1.3600 and should now target 1.3800 in the days ahead, partying like some private drinks at 10 Downing Street. USD/JPY is steady at 115.25 but remains a bid on dips into 115.00 as long as US yields remain at these levels.
AUD/USD and NZD/USD are unmoved in Asia after edging higher to 0.7210 and 0.6790. Both continue to be bounced around on RORO (risk-on, risk-off) sentiment swings, but ultimately, are range-trading right now. The moves higher overnight weren’t overly convincing suggesting nerves ahead of US inflation data tonight. Key levels for AUD/USD are 0.7150 and 0.7300, and 0.6700 and 0.6850 for NZD/USD.
USD/CAD tumbled 0.85% to 1.2570 overnight and has activated a hand-and-shoulders formation after closing below the neckline at 1.2630. The reasons for the Canadian dollar rally still elude me but I will respect the technical picture. That now suggests USD/CAD can fall to between 1.2300 and 1.2360 in the days ahead.
USD/Asia softened overnight, with regional currencies strengthening slightly as Jerome Powell took the wind out of the Fed tightening trade. USD/KRW has fallen to 1190.00, USD/PHP to 51.00, while USD/MYR has eased to 4.1790, and USD/THB to 33.369. USD/CNY and USD/CNH today remain just below the key pivot level at 6.3800, trading at 6.3650 and 6.3700 respectively, which is becoming a key pivot point now. Activity is muted in Asia with the region clearly waiting for US inflation data tonight before deciding its next moves.
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Jeffrey Halley
He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.
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