US dollar clings to gains

US dollar stays firm

The US dollar finished higher overnight, but only marginally so as the peak-Ukraine rally in equities caused the greenback to give back much of its intraday gains. The dollar index finished 0.21% higher at 96.75, before climbing another 0.12% to 96.86 in Asia today.

Given the bargain hunter mentality sweeping the equity markets, it is interesting that the US dollar continues to trade firm, even more so given the move lower by US yields across the curve overnight. That implies that haven flows are still quite substantial and are heading into the US dollar and the US bond market. Buying the US dollar remains the easiest way to express the war on Ukraine by Russia, and as such, despite the noise in equity and energy markets, I expect currency markets to continue reflecting those concerns. A powerful set of US data this week or hawkish testimony from Powell will put a 0.50% hike this month by the FOMC front and centre, another bullish US dollar factor.

EUR/USD remains at 1.1200 and seems to be weathering the storm at these levels. 1.1100 remains its critical support. GBP/USD is holding at 1.3400 with 1.3300 and 1.3550 its immediate support/resistance. The US/Japan rate differential is back in play on USD/JPY, with the fall in US yields overnight dragging USD/JPY back to 115.15. Only a loss of 114.50 suggests a deeper correction.

AUD/USD and NZD/USD rallied impressively by 0.45% overnight, before retreating by 0.20% today to 0.7255 and 0.6755 respectively. Like the euro, both antipodeans are weathering the Eastern European storm at the moment and looking at the charts, both could be in the process of forming longer-term inverse head-and-shoulder formations, bullish structures. There is still water to flow under the bridge before this is confirmed though, and a mid-March FOMC and Ukraine developments to negotiate.

While the USD/CNY remains anchored at 6.3100, Asian currencies also rallied overnight, although only back to their starting points from the open yesterday morning. Asian FX remains acutely vulnerable to inflation developments, oil rallies and negative developments in the Ukraine-Russia situation.

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