The US dollar continues to climb

The US dollar retained its upward momentum overnight, ignoring the Wall Street rally, with the dollar index testing its October highs as it rose 0.60% to 93.95. Although some profit-taking has seen it edge lower in Asia, the dollar index is within shouting distance of its 100-day moving average (DMA) at 94.28. That may well be tested in the early part of next week, signalling yet more gains into the election.

In contrast to the previous session where the dollar-bloc currencies suffered, it was the euro and sterling, which felt the US dollar’s strength overnight. The euro tested its 100-DMA at 1.1654 before rallying slightly, finishing 0.60% lower at 1.1673. Sterling fell 0.40% to 1.2930, having tested its 100-DMA at 1.2875 earlier in the session. EUR/USD is in danger of further losses to 1.1600, and GBP/USD to 1.2800 today if their 100-DMA’s fail.

USD/JPY tested 104.00 overnight, before rallying vigorously to finish at 104.60, and in the process tracing out a bullish outside reversal day. Of late, outside reversals have been poor indicators, and USD/JPY has eased to 104.40 in Asia. Although the technicals suggest USD/JPY will now test 105.00, I suspect upcoming political risks will see the yen’s haven appeal reassert itself and for the USD/JPY rally to peter out.

Asian currencies continue to hold steady, bolstered by the ramparts of a strong Chinese yuan. Indeed, most have made slight gains today as profit-taking sees the US dollar ease in Asian trading. That state of affairs is likely to be temporary though, although I expect that Asian currencies will outperform the G-10 in the coming week.

With risks accumulating on many fronts into next week, I expect any US dollar weakness to be temporary and for dollar strength to persist and even increase over next week. Haven currencies, as well as the yuan and won, will also outperform.

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