US dollar retreats overnight
Currency markets are drifting in Asia after a non-descript session overnight. The US dollar gave back some of its recent gains overnight, with the dollar index retreating 0.28% to 90.78. It is barely changed in Asia, rising two points to 90.80 as trading among the major currencies remains moribund this morning.
It would be premature to say that the US short-squeeze has run its course with the US data set to impress this week, which may see US yields firm once again. The technical picture still points to more downside pressure on EUR/USD and GBP/USD, and more upside pressure on the USD/JPY. Support for EUR/USD remains its 100-day moving average at 1.2025, followed by 1.1950. GBP/USD has support at 1.3860, followed by the rising wedge at 1.3785. USD/JPY pullbacks should be limited to the 106.50 area.
Both the Australian and New Zealand dollars tested multi-week support yesterday before recovering. Their rallies overnight remain modest, though, and any bubble jitters are likely to see them retest those channels. Support for AUD/USD is at 0.7740 today, and for NZD/USD at 0.7200. Failure opens up 200-point drops for both in the coming week.
Asian currencies are quiet, with the PBOC fixing USD/CNY lower at 6.4565, comfortably in the middle of the 6.4000/6.5000 PBOC comfort zone. The Thai baht, Philippine peso and Indonesian rupiah have eased slightly today, reflecting investor nerves on US bond yields. Elsewhere though, the Singapore dollar and Malaysian ringgit have gained somewhat.
Central banks generally remain “on message,” releasing as many doves as possible, rightly concentrating on the fragility of employment due to the pandemic. Overall, the picture of currency markets is one of wait-and-see, with the US dollar upside being the path of least resistance still. We can expect the remainder of the week to be busy for the dollar, with the release of US ADP Employment, the ISM survey and Non-Farm Payrolls.
