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US dollar retreats on equity rally

Equity surge sends US dollar lower

Dollar shorts gained some relief overnight, after the rally in equity markets mechanically flowed through to a weaker US dollar. The dollar index retreated 0.33% to 94.27 but remains comfortably above support at 94.00. In the G-10 space, the procyclical EUR, AUD and NZD all traced out modest gains overnight, although all remain at the lower end of their one-month ranges.

Sterling was an outperformer, as hopes rise of a breakthrough in post-Brexit trade agreement negotiations between the United Kingdom and the Eurozone. The Times newspaper has reported potential breakthrough in trade talks between the UK and Europe. European negotiators are indicating they are prepared to start working on a joint legal text, while sidestepping the major sticking points of government subsidies and fishing rights. GBP/USD spiked by 150 points to 1.2930 at one stage, before settling at 1.2830. GBP/USD has edged higher this morning, and if the Times report is correct, could well retest its overnight highs in Europe this afternoon. GBP/USD has traced out multi-day support at 1.2680 now. It is additionally supported by its 100 and 200-day moving averages (DMA’s), at 1.2740 and 1.2715 respectively.

Asian currencies have edged higher in subdued trading this morning, following the US dollar fall overnight. The PBOC is determined to keep the USD/CNY anchored between 6.7500 and 6.8500 across the one-week holiday starting Thursday. That should ensure that regional Asian currencies also remain captured in tight ranges.

Although the US dollar fell overnight, there were no significant drivers other than the end of the quarter itself, with the ensuing rebalancing flows. With CFTC data showing speculative short dollar positioning remaining high, it is too soon to say that the US dollar correction has run its course.

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 [4]

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 as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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