Fading stimulus hopes lift the US dollar

The US dollar rallied quite impressively overnight, boosted by fading hopes of a US fiscal stimulus agreement with both sides remaining seemingly deadlocked. The US dollar index rose 0.53% to 93.53 with the index tracing out triple-bottom support at 93.00 now. That saw the EUR/USD ease by 0.55% to 1.1740 with a failure of 1.1700 now signalling further losses. Brexit concerns compounded the negative sentiment for sterling, GBP/USD falling 1.0% to 1.2930, with the 100-day moving average (DMA) at 1.2825 being the next important support.

USD/JPY continues to trade quietly between 105.00 and 106.00 with Japanese fund managers in wait and see mode like the rest of Asia. Some AUD/NZD selling was evident overnight as New Zealand’s Labour party heads for a landslide victory in this weekend’s election, falling 0.70% to 10760. AUD/USD remains comfortably above support at 0.7100 for now, however.

Despite the histrionics overnight, the G-20 currency space remains mostly contained within their recent two-month ranges. We expect that choppy range trading within those boundaries will dominate until the US elections.

Brexit crisis weighing on euro and sterling

Meanwhile, a new Brexit crisis is brewing, as a self-imposed deadline by the UK expires on Thursday. The UK and the EU have been arguing over fishing rights and state aid programmes, with each side accusing the other of not showing enough flexibility, as a trade deal remains elusive. A failure to read a trade agreement would be a huge black mark for both the euro and sterling. Those with long positions in both should tread very cautiously over the next two weeks.

In Asia, strong China data yesterday has lifted the pro-cyclical AUD/USD and NZD/USD by 0.20% this morning. That theme has dominated a quiet session for Asian currencies as well. Despite a weaker CNY fix this morning, Asian currencies have continued to edge higher versus the dollar, supported by the seemingly endless procession of robust China data.

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