US dollar stages impressive rally

US dollar climbs higher

The US dollar staged another impressive rally overnight, this one much broader-based than the day before. with the dollar index unwinding much of the last week’s retreat in just one session. Notably, US yields actually eased overnight, particularly at the long end and it looks like currency markets were positioning for both recessions and haven inflows in US bonds. The dollar index rose by 0.59% to 1.0510 overnight, easing to 105.01 in Asia. ​ Support remains at 1.0350 and 102.50. ​ With resistance at 105.00 now eroded, the index’s next resistance is at 1.0585.

EUR/USD slumped by 0.77% to 1.0440 overnight on Eurozone recession fears, rising to 1.0450 in Asia. Resistance is well and truly in place at 1.0600, followed by 1.0650. The failure of 1.0500 and 1.0450 overnight bring the critical 1.0350 regions into focus again. Failure signals further losses to 1.0200 initially and potentially to parity in the weeks ahead.

Sterling fell 0.50% to 1.2125 overnight, being unchanged in Asia. GBP/USD has initial resistance at 1.2300, 1.2360 and 1.2400, with support at 1.2175 and 1.2160. Failure of 1.2160 on a closing basis suggests a renewed move lower towards 1.1950.

USD/JPY climbed again overnight, and given US yields eased lower, I can only assume risk aversion drove part of the rally. USD/JPY climbed 0.33% to 136.60 overnight, where it remains in Asia, seeing none of the slight US dollar weakness in other parts of the currency space in Asia today. USD/JPY has support at 134.25 and 132.00, with resistance at 136.65 and 138.00. If the US yield curve is about to pivot to an inverse shape, the end of the USD/JPY rally could be in sight and a move above 140.00 could be a bridge too far.

Asian currencies also buckled overnight, led by the Korean won, and Philippine peso, with USD/KRW and USD/PHP rising above 1300.00 and 55.000 respectively. The Indian rupee remains near record lows with USD/INR at 78.764 this morning. In contrast, the Chinese yuan remained unmoved thanks to offsetting moves in its fixing basket. Asian currencies have rallied somewhat this morning and the price action in USD/KRW, USD/INR, USD/THB, and USD/PHP hints there are a few central banks around today selling US dollars. Asian foreign currency reserves remain ample, but the region’s central banks will not be trying to draw lines in the sand, choosing their battles carefully. With risk aversion around recessionary forces finally spilling into the Asian currency space more broadly, further weakness into next week seems likely. ​

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