US dollar rally continues unabated

US dollar rises on hawkish FOMC minutes

The US dollar continued its upward momentum overnight after hawkish FOMC Minutes lifted US bond yields higher across the curve. Recession nerves are also serving the greenback well as haven inflows continue to boost it. The dollar index rose 0.52% to 107.04 overnight, easing to 106.87 in Asia. The technical picture remains constructive although the daily relative strength index (RSI) is flirting with overbought territory, suggesting a temporary downward correction is possible. Having broken out of a 5-year triangle at 102.50 in April, its longer-term target remains the 1.1700 area with 1.1000 immediate resistance. Support is at the 1.0585 breakout point, and then 1.0500, followed by 1.0350 and 102.50. ​

EUR/USD remained under pressure with recessionary woes higher there than in the US. EUR/USD fell by 0.78% to 1.0185 overnight, before edging higher to 1.0200 in Asia. Europe’s energy vulnerability continues to weigh on the single currency and the Norwegian strike settlement, ominously, had no positive impact on the euro. Since breaking a multi-year support line at 1.0850 in April, Euro has never looked back. An oversold RSI could allow for a more extended recovery, with resistance at the 1.0300 and the 1.0350 breakout, followed by 1.0600. Support is at 1.0160 and then 1.0000.

GBP/USD coat-tailed the euro lower overnight, with UK politics having little impact on either Sterling or UK equities. GBP/USD fell by 0.30% to 1.1925, rising to 1.1950 in Asia. Immediate support is at 1.1880 and 1.1800, with 1.1400 the medium-term target. Resistance is at 1.2000 and 1.2200.

USD/JPY tested 135.00 overnight, but the rise in US yields lifted back to 135.90, leaving it almost unchanged overnight. In Asia, it has edged 0.15% lower to 135.70. Markets appear to be waiting now to see if the rise in US yields continues, or runs out of steam, dictating the direction of the pair. USD/JPY has resistance at 136.65 and 138.00, with support at 134.25 and 132.00.

AUD/USD and NZD/USD ranged overnight, finishing slightly lower in New York. The huge Australian trade balance number has lifted AUD/USD today, rising 0.60% to 0.6825. That has dragged the Kiwi higher as well, NZD/USD rising 0.65% to 0.6190. AUD/USD has nearby resistance at 0.6850, and NZD/USD at 0.6200. Risks remain skewed to the downside.

Asian currencies faded on US dollar strength overnight. Although the USD/CNY held steady, the KRW, THB, and PHP lost more ground after a hawkish FOMC Minutes. A raft of new rules to encourage INR inflows by the Reserve Bank of India yesterday say USD/INR trade in a wide range, but ultimately, INR strength proved temporary, and USD/INR closed almost unchanged. Lower oil prices may boost INR today and that is a pattern we are seeing across the Asian FX space, with most Asian currencies booking roughly 0.20% gains versus the greenback. Still, the bigger picture shows Asian currencies remain vulnerable to tighter US monetary conditions and a US recession and today’s strength looks temporary.

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