US dollar is rangebound in Asia

The US dollar short squeeze ran out of steam overnight. After rising to 93.59 overnight, the dollar index failed ahead of its 50-day moving average (DMA) and finished the session slightly lower at 92.91. This morning, the index has edged higher to 92.96 in directionless trading. The EUR/USD tested support at 1.1750 overnight, before rising to the middle of its two-month range at 1.1845 this morning.

British pound heads higher

The British pound’s Brexit comeback marched on, as hopes continue to rise of an EU trade deal breakthrough and movement by the government on the Internal Markets bill. Tensions over Brexit have eased ever so slightly, with some apparent minuscule progress in trade negotiations. Presidential candidate Joe Biden called the UK out on its Internal Markets Bill, saying he would not sign onto a US/UK trade deal if the bill undermined the Good Friday Agreement, which it would. The threat caused Prime Minister Johnson to backtrack somewhat overnight, as Johnson will allow a Parliamentary override.

The GBP/USD has rallied to 1.2950, within shouting distance of its triple-top at 1.3000. Although the rally is based on hope, rather than facts, a daily close above 1.3000 suggests further gains to 1.3200. I would argue that being long 1.3000 is a dangerous game for now.

The pro-cyclical currencies have all gained this morning, as Asian equities hold their own after the overnight US sell-off. AUD and NZD are both higher, with USD/JPY breaking support at 105.00 overnight, suggesting more yen strength and a move lower by USD/JPY to 103.50 in the coming sessions.

Asian currencies continue to defy the US dollar short squeeze amongst the G-10 grouping. USD/CNY is poised to break 6.7500 on its way to 6.7000. The MYR, THB, PHP and SGD are all higher today with a lower for longer FOMC bringing developing market yield differentials back into play.

We expect this divergence to continue, with G-10 currencies ranging, albeit noisily, with regional Asian and Australasians maintaining strength on positive China data and yield differentials.

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