US dollar ignores debt ceiling hopes

US dollar ignores debt ceiling hopes

Currency markets reacted only marginally to the short-term debt ceiling compromise from the US Republicans overnight. Risk sentiment currencies such as the AUD and NZD narrowed losses, but overall, the US dollar continued marching higher, despite US long-dated yields easing slightly. The dollar index rose 0.27% to 94.23, where it remains in Asia today. Although the dollar index continues to rise, my earlier view remains the same, the 93.50 to 94.50 range will contain until the US employment data is released tomorrow night.

EUR/USD faded 0.35% to 1.1555 overnight, and the single currency has failed to meaningfully test resistance at 1.1650, with 1.1600 now forming a short-term barrier. The euro still looks vulnerable to further pricing of the Fed taper, and a weekly close under 1.1500 tomorrow night will be a powerful bearish signal. GBP/USD continues to just keep its head above water, trading at 1.3585 today. It has failed to recapture its downside breakout line, today at 1.3620, and it is probably only EUR/GBP selling keeping it afloat. GBP/USD remains vulnerable to further falls that retest last weeks 1.3415 lows, as the energy/logistic crisis continues, and the circling wolves of the European Union Brexit lawyers sharpen their pencils.  With US yields hardly moving overnight, USD/JPY remains anchored around 111.50. A weekly close above 112.00, or below 109.00, is required to signal USD/JPY’s next directional move.

AUD/USD has now reclaimed all of yesterday’s losses by rising 0.20% to 0.7285 today. The technical picture suggests that gains above 0.7300 will be challenging. However, a soft US Non-Farms tomorrow should see risk sentiment jump, which could propel AUD/USD back towards a 0.7400 handle. NZD/USD looks the more vulnerable right now, remaining 0.70% lower from yesterday at 0.6920. New Zealand’s level 3 virus containment zone was widened to areas south of Auckland today, and I believe Delta’s escape from the metropolis is causing disquiet and is limiting NZD gains. The kiwi remains vulnerable on the AUD/NZD cross and could test 0.6800 if the virus situation darkens or the US Non-Farms outperform.

The Republican debt ceiling compromise offer has given Asian currencies a temporary respite from US dollar strength. Overall, however, regional currencies remain near recent lows versus the greenback. Regional Asian currencies are almost unchanged from yesterday’s open and will have little incentive to move far today, with the major currency space trading quietly, China due to return tomorrow, and US Non-Farm payroll data due tomorrow night. The US data will determine Asia FX’s next directional move, although high energy prices, that are mostly priced and transacted in US dollars, are likely to limit any possible gains, with most of Asia being an energy price taker.

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