USD longs have had a tough day across the board in Asian trading.
With the exception of USD/CNH (more on this later), it looks like a good old-fashioned squeeze on long USD positions today. Although US yields have ticked slightly lower during the session, I don’t think this has been the driver. More than likely some initial USD selling in USD/JPY and USD/CNH has become a self-sustaining sell-off as stop losses get triggered pushing the USD lower and thus triggering more selling and so on. Add in short-term momentum players jumping on for the ride, and you most likely have your answer.
In the medium term it’s probably no bad thing for USD bulls with deeper pockets. The market had clearly gone into the holiday season long to the gunnels of USD, and this continued through the first two trading days of the year.
Some of the price action today has been fascinating though, most particularly in USD/CNH.
There are squeezes, and then there are choke holds that make you unconscious. USD/CNH is very much in the latter today. The PBOC has engineered the mother of all funding squeezes on the off-shore market, making short CNH positions emotionally expensive to fund today. This has been going on for the last week or so and is certainly cheaper than intervening by selling dollars. To give you an idea of just how expensive, tom/next USD/CNH points have dealt at the equivalent of 58% PA in the wholesale market today! That’s what you are paying to fund short CNH positions at the moment. Ouch.
The rot started last night in New York with USD/CNH falling from 6.9600 to 6.8600. After a bounce back to 6.8900 in early Asia, we plunged again to 6.8100 area, for an 800 point down day.
USD/CNH has support at the psychological 6.8000 regions and the 100-day moving average at 6.7800. Resistance is far away at 6.9870 with all talk of 7.0000+ now quashed until funding normalises and or the USD rebounds in general.
A victim of the perfect “storm” today. Having tested and failed at its recent highs around 118.70 on Tuesday. Nervous longs took flight yesterday with USD/JPY ending 120 pips lower around 117.00. After a brief rally aka USD?CNH a flurry of stop losses were triggered again as 117.00 broke. This, in turn, set off yet more selling to fall to just shy of 116.00 before a small bounce to 116.40.
As the chart below shows, USD/JPY has in fact been stagnating between 116.00 and 118.70 for a while now and broke its uptrend last week. One imagines there may be more pain to come from this trade.
116.00 is key support now with a daily close below opening sub 115.00 technically. Resistance is at 117.00, this morning stop-loss driven break down, and then the recent highs at 118.70.
Rallies 50 points on the session to 7320. Longer term resistance though is still far away at 7525 with support at 7150.
Near-term, support is at 7250 and resistance here at the day’s highs of 7325. Position weightings are not so extreme in AUD and hence its more muted move.
The SGD has also had a fantastic 24 hours, with the USD falling against it from 1.4500 to 1.4320. In the process breaking support around 1.4430 and 1.4350. These now become resistance. Support is at 1.4320 and then 1.4270 and 1.4220.
Much will depend on the price action of CNH given its weighting in the Singapore NEER basket. Nevertheless, there was more than a small hint of long USD/Asia unwind in the USD/SGD price action today.
The list goes on with USD/CAD testing its 100-day moving average at 1.3247 for example. As I said yesterday, reality appears to be biting for many participants as Mr Trump’s inauguration nears. The temptation to lock in profits (or not lose too much in the first week of the year) appears too tempting for many, and after a stellar USD run, I really can’t blame them.
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