The US dollar crushed under ECB stampede

Euro jumps on rate hike fever

The US dollar was in full retreat overnight as the ECB did not do enough to dampen hiking expectations at its overnight policy meeting. That led to a powerful rally by EUR/USD which spilt over into the other G-7s and the wider currency space despite US yields rising across the curve once again. The dollar index fell by 0.53% to 93.36 before edging higher to 93.39 in moribund Asian trading. The dollar index has smashed through support at 93.50 which becomes resistance and could well target 93.00 if sentiment remains the same when Europe arrives this afternoon.

EUR/USD has risen by 0.75% to 1.1680, breaking resistance at 1.1670 leaving its next upside target at 1.1750. GBP/USD has risen 0.35% to 1.3795 but must break strong resistance ahead of 1.3835 to decisively swing the picture back to bullish with a BOE hike next week seemingly fully priced in. USD/JPY has eased 0.20% to 113.60 with support at 113.25. USD/JPY is likely near its lows at these levels as US yields continue to move higher, widening the US/Japan rate differential. An election in Japan this weekend will also temper yen gains today.

The US dollar fall overnight boosted the commodity currency space although USD/CAD and NZD/USD are still locked in range-trading mode. The spike in Australian 3-year rates is an additional supportive factor along with greenback weakness.  AUD/USD has risen 0.35% to resistance at 0.7550, and a close above that tonight signals further gains above 0.7600. All eyes will be on the RBA on Monday morning and could lead to some large intra-day volatility.

Asian currencies booked only patchy gains versus the US dollar overnight, suggesting that China growth and US yields remain a concern across the region. The Indian rupee and Malaysian ringgit rose while the Korean won and Chinese yuan held steady.The PBOC once again set another neutral USD/CNY fixing, limited Asian FX gain versus the US dollar. The central bank has a clear preference for now to maintain currency strength while adding liquidity directly to the domestic system instead, likely with one eye on its imported energy bill.

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