The US dollar sell-off pauses for breath

US dollar shows recovery

A continued fall in US yields overnight, and upbeat US data, saw the greenback fall initially in New York. However, those losses could not be sustained as markets ran out of short-term momentum. Like equities, currency markets appear to be adopting a wait-and-see posture now, awaiting important data on Thursday and Friday.

The dollar index finished the day slightly higher by 0.16% and has advanced marginally higher to 92.36 this morning. Having broken significant support at 92.00 intra-day overnight, the reversal from the 91.75 lows hints that the dollar’s sell-off could be pausing for breath for a day or two after a strong move lower.

Notably, the pro-cyclical leader of the dollar sell-off, the euro, could not break critical resistance at 1.2020 overnight, moving lower to 1.1910 this morning. The Australian dollar fell after the GDP data was released today, dropping 0.25% to 0.7350, with the NZD/USD rising 0.30% as the AUD/NZD cross came under pressure. The sell-off is likely to be short-lived with AUD/JPY, notably, still in a very bullish technical pattern, signalling more gains for the AUD lie ahead.

Across Asia, the CNY, THB, MYR and SGD have given ground slightly to the greenback today, reflecting the dollar rebound overnight. The moves look corrective in nature, though.

Although the US dollar may be set for some consolidation over the next 24 hours following recent uni-directional moves lower, the underlying drivers for a lower dollar remain well and truly intact. Softer US yields, endless quantitative easing, the state of the US government’s finances and data suggesting a gradual recovery in the world’s economy.

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