Improved risk sentiment sends USD lower

US dollar stuck in choppy waters

The choppy range trading of the past few session continued overnight as the US dollar swung on day-to-day moves in risk sentiment. A powerful session by Wall Street, along with almost unchanged closes in US bond markets saw improved risk sentiment send the greenback lower overnight. The dollar index fell 0.31% to 101.76 overnight. Strangely for Asia of late, the directional move has continued today, pushing the index down 0.24% to test support at 101.50. Failure of 101.50 opens a potential test of major support at 101.00. Resistance is distant at 102.50.

Not unexpectedly, EUR/USD was a major beneficiary as risk sentiment swung higher. The single currency rose 0.47% to 1.0730 and this morning has pushed through resistance at 1.0750, rising 0.25% to 1.0755. That brings the multi-decade trendline resistance, today at 1.0830, back into view. I would require a weekly close above 1.0830 to waver in my negative outlook and I remain convinced we are just one negative Russia energy headline away from the whole rally evaporating. Support remains at 1.0650.

GBP/USD added just 0.20% to 1.2610 overnight, gains tempered by the government’s energy company windfall tax and energy subsidy announcements. Today, sterling has outperformed, rising 0.35% to 1.2655, taking out resistance at 1.2640. It has resistance at 1.2700 now, with support at 1.2600 and 1.2470.

USD/JPY eased slightly overnight, losing another 0.20% to 126.85 on US dollar weakness this morning. The cross remains at the mercy of move in US bond yields, and with those being benign this week, USD/JPY has continued to grind out long positioning. The chart suggests USD/JPY has further downside potential that could target 125.00. Only a move through trendline resistance at 127.80 changes the picture.

AUD/USD and NZD/USD moved sideways overnight but have posted decent gains in Asia as risk sentiment finishes Asia’s week on a high note. AUD/USD has 0.62% to 0.7140 and is eyeing resistance at 0.7150. It could potentially extend gains above 0.7200, while support is at 0.7050. NZD/USD had risen by 0.65% to 0.6520 today, taking out 0.6500 and leaving its next target as 0.6570. Support is at 0.6450.

Asian FX is moving higher today but is not reflecting the US dollar weakness seen versus the G-10. USD/CNY, USD/CNH, USD/SGD, USD/INR, and USD/THB have fallen around 0.15% today, with the region’s ugly ducklings of late, KRW, IDR and MYR all rising by around 0.40%. That suggests that the positioning we are seeing today is being driven by fast-money flows. Unfortunately, fast-money leaves as fast as it arrives and thus, I am taking today’s gains with a grain of salt.

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