US dollar consolidates

Will US inflation shake up the greenback?

After the impressive rally on Monday, the US dollar settled into a pre-US-inflation waiting game overnight, which continues today in Asia as the greenback consolidates recent gains. ​ The dollar index closed almost unchanged at 108.15 overnight, where it remains in Asia. Resistance is at 108.45 and 110.00. Support is at the 1.0585 breakout point, and then 1.0500, followed by 1.0350 and 102.50. ​ The US inflation data will dictate whether the overbought relative strength index indicator (RSI) has signalled a short-term correction lower for the US dollar.

EUR/USD traded at 1.0000 overnight, but held this level and rose back to finish the day unchanged at 1.0037, where it remains in Asia. A break of 1.0000 is likely to trigger a sharp move lower as stop-losses and algos kick in. Since breaking a multi-year support line at 1.0850 in April, the euro has looked consistently weak, the recovery rally failing ahead of 1.0850 in a technical analysis nirvana. An oversold RSI allows for short-term recovery, with resistance at 1.0200 and 1.0270. Support is at 1.0000, and failure targets the 0.9900/25 area.

GBP/USD fell to nearly 1.1800 overnight before rallying to an unchanged close at 1.1890 overnight. In Asia, it has crept slightly higher to 1.1910. Immediate support is at 1.1800, with 1.1400 as the medium-term target. Resistance is well defined at 1.2060 and 1.2200.

USD/JPY edged 0.40% lower to 136.90 overnight as US yields eased, rising to 137.05 in sedate Asian trading. USD/JPY has resistance at 138.00 and 140.00, with support at 136.00, 134.25 and 132.00. Only a sharp fall in US yields seems likely to turn USD/JPY lower, but a soft US CPI (relatively), this evening, could also do the job.

AUD/USD edged 0.35% higher overnight to 0.6755, rising slightly to 0.6770 in Asia as risk sentiment stabilises, at least for now. ​ In Asia, it has eased 0.17% lower to 0.6725. Risks remain skewed towards the downside and a test of 0.6600. It has resistance at 0.6780 and 0.6850. NZD/USD is unchanged at 0.6130 today, with the RBNZ’s 0.50% hike today clearly priced into the market.

Asian currencies ranged overnight, producing a mixed bag of modest gains and losses against the US dollar. The Philippine peso underperformed again, USD/PHP rising 0.65% to 56.34 as the trade balance deteriorates, inflation rises and harsher tightening by the BSP is priced in. Asian currencies have booked small gains today in an otherwise lacklustre session.

Overall, currency markets look content to wait on the sidelines for the US inflation data this evening. How the coins fall will dictate the US dollar’s next directional move.

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