US dollar gains ground after nonfarm payrolls

The US recovers on Friday and maybe signals a correction

With investors taking the risk of the board on Friday after the US employment data, the US dollar was a significant beneficiary, the dollar index surging 0.67% higher to 93.39. With the G-10 currency grouping, all exhibiting signs of downside reversals against the dollar, a rally by the dollar index through 94.00 suggests a much stronger US dollar correction could occur.

The EUR/USD fell 0.80% to 1.1796 on Friday and has now failed three times above 1.1900 in the past week. GBP/USD fell 0.70% to 1.3070, having failed twice last week ahead of formidable multi-month resistance at 1.3200. The Australian dollar retreated 1.10% to 0.7160 and has formed a trip top at 0.7240. The New Zealand dollar fell 1.35% to 0.6600 on Friday, a daily pivot point. It has failed eight times at 0.6700 and looks set for a deeper correction to 0.6500 and then 0.6400. USD/CAD and USD/CHF are displaying much the same formations, with only USD/JPY remain neutral around 106.00.

USD/CNY/CNH and USD/SGD have bottomed below 6.9400 and 1.3700, respectively. Regional Asia is yet to follow suit, but a resurgent US dollar versus the majors would inevitably flow through to Asian currency weakness. That would leave the Indonesian rupiah the most vulnerable to further falls. The IDR has been quietly punished by financial markets since the Bank of Indonesia “burden-sharing” with the Ministry of Finance episode, the BOI directly monetising a new government bond issuance. IDR has fallen ever since, missing out on the benefits of the US sell-off. A move higher by the US dollar now threatens to send USD/IDR up through its 100-day moving average at 15,000.00, increasing investor disquiet about South East Asia’s largest economy.

Currency markets are moribund in Asia this morning with Japan and Singapore on holiday. Overall, I will be a hero or a zero this week, as I nail my flag to US dollar rally pole, as the major currencies all trace out corrective downside patterns versus the greenback.

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