Dollar recovery ends quickly

Dollar under pressure after brief respite

US yields are quickly reversing lower after spiking higher after Mr Powell’s address on Thursday. The reality that inflation is but a distant hope, and that interest rates in the US are going nowhere in a hurry, saw the rotation out of US dollars recommence with renewed vigour.

Across the G-10 space, both pro-cyclical and defensive currencies all recorded substantial gains. The dollar index fell 0.75% on Friday, and this morning it is eyeing daily support at 92.15, with its next target at 91.00. EUR/USD has risen to 1.1915, with a test of the recent highs at 1.1970 seemingly inevitable. GBP/USD broke through resistance at 1.3280 on Friday, on its way to 1.15% gain to 1.3345. The December 2019 high at 1.3215 looms as the next target.

USD/CHF amongst the defensive currencies is particularly interesting. USD/CHF fell 0.50% to 0.9030 on Friday, just shy of the 2020 lows at 0.9015. A weekly close below 0.9000 on Friday opens up a yawning chasm on the longer-term charts. The next support is around 0.8000, the SNB capitulation lows. Before readers ask, still to this day, I have no idea what the real low was that day. Ask ten different participants, and you will get ten very different answers. Such are the perils of a fragmented currency market with no central transacting venue.

The pro-cyclical Australian and New Zealand dollars had strong rallies, breaking resistances at 0.7300 and 0.6700 respectively. USD/CNY is testing support at 6.8600, and USD/CNH at 6.8400. The story is much the same across Asia, with SGD, MYR, THB and PHP all moving higher today, following rallies on Friday.

Overall, the great US dollar rotation trade appears to be back with a vengeance. A United Kingdom holiday today will mute activity in currency markets this afternoon. Still, the overall picture is one of renewed vigour and momentum for the global recovery, and by default, the lower dollar trade. Assuming that stays on track, and with US real yields set to remain negative for a long time, this trade will be with us for many months into the future.

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