US dollar crushed by a dovish Fed

Major currencies jump on sagging US dollar 

The US dollar spent all of yesterday on the back foot, having started falling the day before as the blue wave disappeared and the world of pre-US-election beckoned. A dovish FOMC saw US Treasury yields move lower as hopes for a multi-trillion US fiscal stimulus disappeared in the election result.

With monetary easing certain to increase and a lower for longer yield world to persist, investors rotated out of US dollars en masse. G-10 and regional Asian currencies had an exceptional night. EUR/USD rallied 0.85% to 1.1825 and looks set to test resistance around 1.1900 in the coming session. GBP/USD powered 1.25% higher to 1.3130 despite non-Brexit breakthroughs. It also looks likely to test resistance at 1.3200. A Brexit breakthrough could well push sterling in this environment close to 1.4000 now.

USD/JPY fell 1.0% to 103.45 overnight, breaking the base of a multi-month descending triangle at 104.00 in the process. That implies further losses to 102.00 initially, and possibly as far as 101.00. Expect official noise on the currency from Japan if that happens, although I suspect the line in the sand is 100.00.

The pro-cyclical AUD and NZD outperformed. AUD/USD crashed through resistance at 0.7200, on its way to a 1.25% gain to 0.7260 overnight and now targets 0.7400 initially. The mighty kiwi rose 1.10% to 0.6760 overnight, just below multi-month resistance at 0.6800. With the world back to a monetary policy-driven world, and China leading the global recovery by a country mile, commodity-based pro-cyclical currencies are set to outperform more haven orientated ones such as the Swiss franc.

Asian currencies also outperformed, as investors rotated into more pro-growth positioning globally as US election risk receded. The PBOC fixed the USD/CNY at 6.6290 today, the strongest CNY fixing since 11th July 2018. Regional Asian currencies are mostly at or very near multi-month highs. With the PBOC comfortable with a stronger CNY for now, it and local Asian currencies are set to outperform as the weaker dollar long-term trend reasserts itself.

Although some profit-taking has been seen in currency markets this morning, the US dollar remains a sell on rallies, and will likely be so for a long time to come.

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