US dollar sustains broad losses
All attention was on the US dollar overnight, which entered a general strategic retreat on currency markets. The greenback broke many important supports in the G-10 space, which has led the dollar rout this year, signalling more losses lie ahead.
The dollar index of developed currencies fell 0.55% to 93.32, carving through support at 92.50, which now becomes resistance. It is a decisive break and signals further losses to the 91.00 regions initially. The EUR/USD rose through resistance at 1.1920, gaining 0.50% on the session. The single currency now targets further gains to the 1.2200 regions. Having led the US dollar sell-off this year, it is essential that the euro now remains above 1.1900.
The British pound outperformed, breaching 1.3200 on its way to a 1.0% gain to 1.3245. Sterling now targets its December 2019 high around 1.3500 in the first instance. Brexit talks with the EU this week could act as a temporary brake on the rally. USD/JPY, having traced out a triple top just above 107.00 just a few days ago, eased further overnight to 105.50. With its RSI nowhere near oversold, it has the room to move lower still, initially targeting 105.00 followed by its July low at 104.20.
Regional Asian currencies also moved higher, but less aggressively than the moves seen by the G-10 space. That likely reflects continued nerves over US/China relations and their more actively managed nature by their respective central banks. Most of the region run various forms of dirty pegs, and being so universally export-reliant, no one wants to let the currency appreciate too far ahead of their regional compatriots. Think of it as a form of currency NIMBY-ism.
Regional Asian currencies will continue to appreciate against the dollar. Possible exceptions being the Indonesian rupiah and the Indian rupee which face individual challenges. One positive of the dollar weakness being that regional central banks now have more room to ease monetary policy if necessary. We should though, expect an orderly march higher by Asian currencies in lockstep with their regional contemporaries, not a free-for-all gold rush.
The US dollar has broken significant support levels across the currency spectrum now. With US yields set to remain capped ad-infinitum by the Federal Reserve, the market is poised to enter another structural medium-term downward move for the US dollar.
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