US dollar retreat continues

USD/JPY slump dominates Asian trade

The US dollar selloff continued overnight after weak US GDP data saw it enter a technical recession. However, the US dollar’s losses were unevenly distributed. With US yields moving lower post-data, USD/JPY plummeted by over 200 points as long US positions were routed, but EUR/USD remained unchanged, only able to reverse its pre-US data selloff.

That left the dollar index just 0.24% lower at 106.24 overnight, losing another 0.24% to 105.95 in Asia. Notably, the dollar index has now taken out the rising wedge support at 106.45, which becomes initial resistance. The daily close under 106.45 overnight is a significant technical development, signalling deeper losses towards 1.0500 and 1.0350 and potentially extending to the initial 102.50 longer-term breakouts. Resistance is at 107.45 and 108.00.

EUR/USD slumped to near 1.0100 intraday pre-US GDP but reversed all those losses after finishing the day unchanged at 1.0195. EUR/USD remains rangebound, with a weaker dollar offset by geopolitical and recession fears in Europe itself. EUR/USD is steady at 1.0210 in Asia. The multi-day resistance around 1.0275 remains formidable. Only a sustained break above 1.0360 now suggests a longer-term low is in place. Meanwhile, EUR/USD has traced out a series of daily lows around 1.0100. The 1.0100 to 1.0300 range is unlikely to fail into the weekend.

GBP/USD has booked only modest gains overnight and today, holding steady at 1.2185 but well clear of its technical breakout at 1.2100. Sterling looks likely to test 1.2200 imminently, signalling a further rally towards longer-term resistance at 1.2400. Support is now at 1.2100, and then 1.1960, followed by 1.1900 and 1.1800.

Softer US GDP data sent, US yields lower overnight, sparking a capitulation sell-off in USD/JPY as heavy long positioning was aggressively culled. USD/JPY collapsed by 1.73% to 134.25, and the selloff has continued in Asia. USD/JPY has slumped another 0.70% to 133.30, and my initial boundary for this occurrence, at 132.50, could be seen by the end of today. The selling in USD/JPY is further capping gains in EUR, GBP, AUD, and NZD as cross/yen positions are liquidated. Support lies at 132.50, 132.20 and then 131.50, but I am not ruling out a deeper decline as panic sets in. Resistance is at 135.50 and 137.50 but short of a reversal higher by US yields, risks remain skewed to the downside.

AUD/USD and NZD/USD are only slightly higher over the past 24 hours at 0.7005 and 0.6310, as AUD/JPY and NZD/JPY selling limits gains. But the technical picture for both remains constructive as both currencies staged upside breakouts higher a fortnight ago. They remain well above their breakout lines at 0.6790 and 0.6145.

Asian currencies finally started strengthening versus the US dollar overnight after weak US data pushed US yields lower as recession fears heightened. The Korean won led gains, falling to 1295.00 overnight, but THB, SGD, and INR also booked decent gains. Some profit taking this morning has seen USD/KRW and USD/THB climb 0.30% higher. It does look like some regional central banks are taking advantage of a weak US dollar today to push their currencies higher. As Dennis Gartman says, always throw your rocks in the wettest paper bag.

USD/IDR plunged below 15,000.00 to 14,955.00 overnight and has mysteriously tumbled another 0.70% to 14,850.00 today. USD/PHP has plunged by 1.05% to 55.22 this morning. I am assuming that both BI and BSP are selling US dollars, and I wouldn’t be surprised to see the RBI doing the same this afternoon. Timing, after all, is everything. With China, European, and US recession risks multiplying, the jury is still out as to whether we have seen the worst of the Asian FX sell-off.

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