The US Dollar edges low post-US inflation

Currency markets remain in a holding pattern erring toward tapering and US Dollar strength. The US inflation data, which came in precisely on forecasts, gave no new impetus to send currency markets one way or the other. That saw some profit-taking on long US Dollar positioning wash through the market, and the dollar index retreated slightly, falling 0.19% to 92.90. Failure of the index’s resistance at the 93.20 double top and support at 92.60, its previous breakout, will signal the US Dollar’s next directional move.

EUR/USD recovered modestly on US Dollar weakness overnight, rising to 1.1745 this morning. Resistance is nearby at 1.1750, with support at 1.1700. Sterling’s price action is more constructive, GBP/USD rising to 1.3870 in Asia. It has support at 1.3800 and depending on the outcome of the UK data dump. This afternoon, it could challenge resistance at 1.3900, which would signal further gains towards the critical 1.4000 pivot-point. A slight fall in US bond yields overnight sees USD/JPY retreating slightly to 110.40 today, although as long as US yields remain at these levels, USD/JPY will remain limited.

AUD/USD has moved back into its rising wedge, trading at 0.7365 this morning. It looks stuck in a 0.7300 to 0.7400 range for now as the virus situation in the lucky country weighs on the topside. NZD/USD rose impressively by 0.48% to 0.7035 after neutral US inflation data and looks increasingly likely to challenge its 100-day moving average at 0.7100. With the RBNZ set to hike interest rates next week, NZD/USD should find plenty of willing buyers on any dips to 0.7000 now.

Asian currencies had a mixed overnight session, MYR. IDR and KRW were easing despite the neutral inflation data, while the THB rallied by over 1.0% as traders took back short positions. Asian currencies remain vulnerable to worsening delta-variant scenarios and a stronger US Dollar, with another Fed official talking tapering overnight. The US Dollar remains bid despite its modest retreat overnight, and unless the Fed tapering talk dies down, the upside for Asian regional currencies will remain limited.

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