US dollar edges higher

The US dollar jumps in Asia on EUR/USD stops

The US dollar edged higher overnight as the FOMC Minutes outlined an increasingly likely start to tapering, commencing around the end of the year. That follows on from a number of Fed officials making comments with a decidedly hawkish tone over the past two weeks, even previous doves. The dollar index was slightly higher at 93.15.

In Asia, though, currency markets have been rather enthusiastic for a change. The dollar index has leapt higher by 0.30% to 93.43, with the catalyst appearing to be stop-loss selling in EUR/USD as it sank through 1.1700. Although equities retreated in New York, the US dollar and US bonds hardly reacted to the Fed minutes, Asia appears to have taken rather more seriously, with potential divergence in monetary policy having heavy implications for the region.

The dollar index is now just shy of resistance at 95.50, which in turn opens the door to further rallies targeting 94.30 and 94.75. Only a fall through 93.00 temporarily upsets the bullish narrative. EUR/USD has fallen 0.34% to 1.1670 today, triggering stops as it passed through 1.1700. That becomes immediate resistance, with the single currency potentially falling to 1.1600.

GBP/USD has fallen 0.30% to 1.3717, well below its 200-day moving average (DMA) at 1.3786, with no support evident until 1.3580. Similarly, USD/JPY has jumped 0.37% to 110.17, just below its 50-DMA with no resistance apparent until 110.80.

AUD/USD and NZD/USD have been under the pump this morning as Covid-19 cases spiral in NSW and rise in Auckland against a general backdrop globally of risk aversion. AUD/USD has fallen 0.45% to 0.7200, my initial target for the technical breakout below 0.7360 last week. AUD/USD could now extend losses to 0.7000 next week. The post-RBNZ short-squeeze was short-lived for NZD/USD, which has fallen another 0.50% to 0.6850 today. Down nearly 2.50% for the week, the kiwi still looks like it has more to go with resistance at 0.6900, but no technical support evident until some congestion around 0.6600. The reality of the delta-variant breaching fortress New Zealand’s gates is now hitting home to investors, especially when you dig into the movement while infectious data. It is not good reading. An extended lockdown looms.

Asian currencies are also in a general retreat today, with USD/CNH climbing 0.20% to 4.4970 and USD/CNY in danger of breaching resistance on a daily basis at 6.4900, having risen to 6.4925 this morning. President Xi’s comments yesterday are likely further spooking investors against a background of general US dollar strength. USD/THB, USD/KRW, USD/SGD are around 0.30% higher, with central bank action possible from South Korea if USD/KRW climbs through 1180.00. USD/MYR is steady at 4.2380 as a political resolution edges forwards, shepherded by the Malaysian King. USD/IDR is steady at 14,380.00 ahead of the BI rate decision today, but IDR may weaken after this afternoon’s announcement, especially if BI makes dovish noises.

It is clear that Asia is giving more weight to the FOMC minutes than US markets did, with the FOMC members seemingly aligned about a start to tapering starting late Q4 or early Q1 2022. The move will have clear implications for USD/ASEAN and USD/JPY, a purely US/Japan rate differential play these days. The technical breaks by euro and sterling are worthy of note with the ECB’s QE forever policies likely to lead to a longer-term weakening of the single currency if monetary policy with the US diverges in the new year. Pop in the ever-present fears surrounding global growth due to the delta-variant, prevailing in markets now, and there aren’t a lot of reasons to be short US dollars right now.

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