US dollar edges lower

Modest US dollar strength in range-trading Asian session

The dollar index fell again overnight, as recessionary concerns appear to be prompting the start of a long-overdue short-term correction to US dollar strength. Resistance at 105.00 held fast on Friday and overnight, the index continued its modest descent, falling 0.27% to 104.19, where it remains in Asia. A daily close below 104.00 could signal a deeper correction towards more important support at 102.50, relieving the overbought technical picture.

Having based at 1.0350 on Friday, EUR/USD has ground higher to 1.0445 today. EUR/USD has resistance at 1.0500, with a rally through it extending gains to 1.0650 and possibly even 1.0800, the 37-year breakout line. In a similar vein, GBP/USD has traced out a low at 1.2155 last week. It has risen 0.15% to 1.2340 today. Again, it too has the potential for a material correction higher with a close above 1.2400 opening the door for further gains to potentially 1.2650. However, like Europe, the United Kingdom’s structural headwinds leave the longer-term picture still bearish.

USD/JPY fell modestly overnight before a rise in US yields in Asian trading pushed it higher by 0.20% to 129.35 today. USD/JPY is displaying corrective potential as well which could extend to 127.00 initially, and possibly 125.00, especially if recession fears continue pushing US yields lower. In the bigger picture, USD/JPY remains at the mercy of the US/Japan rate differential.

The rally in global sentiment has allowed AUD/USD and NZD/USD to recapture 0.7000 and 0.6300 today and both could potentially have another 200-300 points of gains ahead if the US dollar correction lower accelerates. In the shorter term, both will continue to be buffeted by swings in investor sentiment, especially around China.

Asian currencies are slightly stronger today as investor sentiment swings to pricing in peak-Shanghai-lockdowns. That will only last if new cases remain at zero, of course. If USD/CNY remains below 6.8000, Asia FX could potentially stage recoveries versus the US dollar, although most remain near their lows versus the greenback. Oil prices remain at multi-week highs, which will be another headwind to an Asia FX recovery.

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