US dollar stages impressive rally

US dollar rises as equities lose appeal

The US dollar rallied overnight, with the dollar index unwinding much of the last week’s retreat in just one session. A slump by US equities sparked a rush to safety in the greenback, even as US yields were almost unchanged. The price action suggests that bounces in risk sentiment lack conviction at this stage. The dollar index rose by 0.50% to 1.0450 overnight, easing to 104.41 in Asia. ​ Support remains at 1.0350 and 102.50, with resistance at 105.00 and 1.0570.

EUR/USD fell by 0.575 to 1.0503 overnight, rising to 1.0525 in Asia with US equity futures. Resistance at 1.0600 and 1.0650 has once again proved insurmountable and failure of 1.0500 sets up a test of support at 1.0450 and 1.0400. The single currency still looks rangebound overall and volatility will be driven by comments from Lagarde and Powell this afternoon.

Sterling fell 0.67% to 1.2185 overnight, rising to 1.2200 in Asia. It has shown surprisingly little response to Scotland’s court challenge to hold another separation referendum, with the fall overnight mostly due to US dollar strength. 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 is back above 136.00 this morning, a notable signal of further yen weakness ahead after US yields were unmoved overnight. USD/JPY climbed 0.50% to 136.15 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.

Asian currencies were surprisingly resilient overnight, hardly moving as the US dollar strengthened in the DM space. The exception was the Indian rupee, with USD/INR climbing 0.75% to 78.922 overnight, another record low. US dollar long-covering in Asia has pushed USD/INR lower to 78.676 today but it remains well above its previous day’s close at 78.338. An easing of inward quarantine restrictions by China yesterday seems to be providing some support to regional currencies, as it is equities, and central banks have likely been smoothing via US dollar sales. If the US dollar rally continues this week, Asian currencies are likely to start buckling again.

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