US dollar on the move

The US dollar continues its march higher

The US dollar shrugged ignored the equity rally overnight, with the US dollar index rising another 0.35% to 92.85, carving through its 200-day moving average at 92.56. That is the first close above the 200-DMA since May 2020 and points to more gains targeting 93.00 initially and then 94.30. Currency markets appear much more focused on the US yield curve for now, with the weak over note auction spurring more dollar strength.

Asia has seen a modest US dollar reversal, most likely driven by profit-taking and the impressive equity rallies this morning. However, EUR/USD had fallen through 1.1800, trading at 1.1780 in Asia. That failure implies deeper losses now, targeting 1.1600. Sterling rose overnight on hopes of European vaccine rapprochement and has climbed to 1.3760 in Asia. It remains some distance from the bottom of its upward channel at 1.3810, and it is too soon to say it is out of the woods.

The Australian and New Zealand dollars went nowhere overnight, although both have climbed higher in Asia. Both Commonwealths remain in deep trouble, though, and any rise in risk-aversion sentiment or US bond yields should see their downtrends resume quickly.

Asian currencies have mostly traded sideways overnight and are generally unmoved after a slightly weaker yuan fix by the PBOC today. Regional markets have taken solace from the equity rally in Asia today and seem content to mark time awaiting the plethora of data and further political developments next week.

In the US, Initial Jobless Claims slipped below 700,000 for the week, hinting yet again that the US economy is recovering quickly. President Biden doubled his jabs in arms target to 200 million in his first 100 days overnight and said that he would run again in 2024.

With the end of the quarter rapidly approaching, currency trading is likely to get very noisy and choppy as institutional quarter-end flows and rebalancing’s dominate markets.

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