Short squeeze sends US dollar higher

US dollar boosted by yield curve steepening

The rise in the US 30-year yields overnight gave the dollar short-squeeze renewed momentum. The dollar index rose by 0.40% to 91.50, lifting it well clear of support at 91.00. The euro and yen were notable index component casualties. EUR/USD has fallen 0.60% to 1.1955, its 100-day moving average (DMA), and well clear of resistance at 1.2055. A fall through 1.1900 potentially targets 1.1600 over the coming weeks.

USD/JPY has risen 0.53% overnight to its 200-day moving average (DMA) at 105.60. A daily close above the 200-DMA signal more gains targeting 107.00 initially as short dollar positioning globally, gets squeezed. Both the cyclical Australian and New Zealand dollars are flirting with support in Asia this morning, setting both up for potentially 300 point moves lower next week. USD/CAD is testing resistance at 1.2825 today, and it could rally to 1.3000 early next week if US dollar strength continues.

Asian currencies remain immune to any sort of moves, up or down this week. The main reason for that is the PBOC is keeping USD/CNY rock steady around a 6.4500 midpoint. The PBOC appears intent on confining USD/CNY to a 6.4000/6.5000 ahead of the Lunar New Year holidays. Unless USD/CNY moves, the rest of Asia is unlikely to either.

Currencies markets are delicately poised this morning, with the charts generally pointing to another leg of dollar strength ex-Asia. Everything will depend on what US yields do this evening post the Non-Farm Payrolls. This market-mover assumes a greater than expected prominence after the rise in 30-year yields. The ADP Employment survey released earlier this week impressively outperformed, and if recent correlations hold intact, points to a much higher NFP number than the street consensus of 50,000 jobs added. A print well above 100,000 could send equities even higher before the weekend.

With the world structurally short the US dollar, rising yields tonight could make things interesting next week.

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