US dollar remains under pressure

The US dollar falls

The US dollar endured a torrid overnight session in an evening with no news of note. Currency markets appear to be playing catch-up to the global recovery Biden stimulus story elsewhere as the dollar index fell 0.54% to 90.44 overnight. Once the 91.00 support broke, the fall’s rapidity suggests that momentum has returned to the short-dollar trade and that the short squeeze has run its course for now. The next critical support for the dollar index is 90.00.

The weaker dollar saw some notable turnarounds in recently unloved major currencies. EUR/USD rose quickly through 1.2060 resistance, finishing the day 0.60% higher at 1.2115. It should target 1.2200 if dollar weakness persists.

USD/JPY has traced out several highs near its 200-day moving average (DMA), which today is 120.60. It fell aggressively overnight, finishing 0.60% lower at 104.60, completely reversing its recent bullish trend. USD/JPY has found support just ahead of its 100-DMA at 104.55, but a test of 104.00 cannot be ruled out if US inflation springs no surprises.

The unloved Australian dollar also staged a sharp reversal, climbing 0.50% to 0.7740 overnight. It broke the top of its symmetrical triangle at 0.7720 and looks poised to join fellow antipodean, the New Zealand dollar, in booking further gains, targeting 0.7800 initially.

China’s inflation data this morning served up no surprises. In January, Inflation MoM printed right on target at 1.0%, with the YoY falling -0.30% versus 0.0% expected. With many seasonal distortions in the lead up to Lunar New Year, plus the odd Covid-19 lockdown or two, China will get a pass mark from financial markets, particularly after robust aggregate financing data yesterday.

USD/CNY fell 0.15% overnight to 6.4360, and most regional Asian currencies have risen this morning in sympathy. Running into the Lunar New Year break, the PBOC’s seeming intent to keep USD/CNY between 6.4000 and 6.5000 is running nicely to plan.

Pre-holiday markets have muted Asian actively, but US dollar weakness should continue this week, unless US inflation prints markedly higher.

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