The US dollar consolidates gains in Asia

Friday’s session was a volatile one for currency markets, but despite the noise, the US dollar finished the day modestly higher, near 4-month highs. The dollar index edged 0.10% higher to 94.05, climbing slightly in Asia to be just shy of its 100-day moving average (DMA), today at 94.25.

Dollar gains against euro, pound

USD/JPY marks time mid-range at 104.60, with further yen strength possible on haven buying this week. EUR/USD took the brunt of dollar strength with it and the sterling, weighed down by Covid-19 woes. EUR/USD has pierced its 100-DMA at 1.1656 today, suggesting that further losses to the critical support at 1.1600 are likely. GBP/USD has eased to 1.2930 today after the new national lockdown announced at the weekend. Support is at 1.2860, with failure opening up further losses to 1.2700.

The pro-cyclical dollar-bloc Australian, Canadian and New Zealand dollars all continue to retreat ahead of the US election. AUD/USD is just shy of three-month support at 0.7000. With the RBA expected to be very dovish tomorrow, the odds of a sudden down move in AUD are increasing. A failure of 0.7000 sets up a potentially rapid fall to 0.6800. The story is much the same if USD/CAD rises through 1.3450.

Asian currencies remain relatively stable, bolstered by robust Chinese data and the yuan, which has strengthened to 6.6900 this morning. We continue to expect regional Asian currencies to outperform the G-10, although they won’t be entirely immune to US election jitters this week.

Aside from the US election, this week has an extremely heavy global data schedule. It culminates on Friday, with US Non-Farm Payrolls, one of the most important economic indicators. The consensus is that the US economy added 600,000 jobs in October, slightly lower than September. China releases Caixin Services and Composite PMIs on Wednesday, with strong readings expected, as China outperforms the world. That should act as a stabiliser for the Asia region after the uncertainty of the US election on Tuesday.

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