The US dollar finally finds some friends

The US dollar rallied strongly versus the major currencies overnight, notably against the Japanese yen, which weakened by over 1.20%, USD/JPY closing at 105.80 on Friday. That said, I cannot find one piece of news to explain the sudden rally. What is notable is that a bullish USD/JPY outside reversal day was traced out. Today, USD/JPY spiked above 106.00 before returning to 105.80, likely on stop-loss buyers and thin early morning liquidity. USD/JPY should target a return to 106.60 initially.

In a volatile session, the dollar index rose o.53% to 93.46, narrowly avoiding tracing out a bullish outside reversal day itself. The dollar index is unchanged in Asia after spiking higher in early trade but is targeting a return to 94.00 before we reassess direction.

EUR/USD touched 1.1900 before sellers emerged, pushing the single currency back to 1.1775. Sterling also rallied, reaching 1.3170 before falling to an unchanged 1.3070. Selling in the EUR/GBP cross appears to have exaggerated the euro’s fall while limiting the damage on sterling. From a technical perspective, both seem poised to retreat further, with initial targets at 1.1700 and 1.3000 respectively.

A stronger US dollar and Covid-19 fears have torpedoed the Australian dollar, dragging the New Zealand dollar with it. The AUD/USD has formed a formidable top at 0.7200, as has the NZD/USD at 0.6700. Both look likely to ease further in the first half of the week.

Regional currencies, having only bought into the US dollar rotation late in the day, has outperformed as a result. Across Asia, having eased only slightly on Friday, Asian currencies are almost unchanged today. It appears that a dollar correction will fall heaviest on the G-10 family.

Overall, the underlying reasons for the US dollar sell-off remain firmly intact. However, nothing moves in a linear fashion forever, and this week seems likely to feature more dollar strength than last. A weak Non-Farm Payrolls print on Friday could extend the dollar strength into next week on haven flows.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley