US dollar slips as risk appetite rises

US dollar falls hard on surging virus sentiment

The US dollar was in full retreat overnight, mostly due to reports that omicron presents fewer hospitalisation risks. That saw sentiment swing even more strongly back to the global recovery trade and saw the dollar index collapse by 0.37% to 96.12, easing still more in Asia to 96.03. I am adjusting my downside support level to 95.85 on the dollar index, where it has traced out a triple bottom. A daily close under 95.85 sets up a deeper US dollar correction, potentially into January, assuming omicron remains a storm in a teacup in the minds of the investors globally.

EUR/USD rallied 0.40% to 1.1340 overnight, but still faces resistance above 1.1360. Only a move above 1.1400 suggests a medium-term low could be in place. GBP/USD shrugged on weaker Q3 GDP to leap 0.66% to 1.3350 after the UK Prime Minster appeared to rule out more virus restrictions, despite cases hitting 100,000 per day yesterday. GBP/USD needs to recapture 1.3400 to signal a medium-term low. USD/JPY remains at 114.15 today, with no movement in US bond yields overnight meaning no movement in the currency pair.

The three risk-sentiment amigos, the CAD, AUD, and NZD all booked strong gains overnight between 0.65% for the CAD, and 0.85% for AUD. A rise above 0.7250 for AUD/USD and 0.6850 from NZD/USD will signal further rallies into the new year. USD/CAD is at 1.2850 this morning and needs to close below 1.2750 to signal the same.

Asian currencies despite a much weaker fixing once again from the PBOC for the yuan versus the US dollar. It highlights the challenges China has to weaken the yuan, without incurring the ire of Washington D.C., as their closed border means recycled Chinese offshore profits provide an underlying bid to the yuan. Asian currencies rose on improving sentiment and a strong yuan ignoring the PBOC signals, continues to provide support during Asian trading hours.

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