US dollar losses continue

US dollar sell-off resumes overnight

The US dollar extended its losses for the week, the dollar index falling by 0.26% through support at 90.50. Assuming it navigates the FOMC without incident, the dollar index remains poised for further losses, with an initial target of 90.00. Having said that, the index has based at these levels numerous times in December, and if the Fed disappoints, a short squeeze could ensue.

Much of the dollar index weakness was led by sterling, although the other major currencies record consistent if modest gains versus the greenback. Sterling rose 1.0% to 1.3450 on Brexit trade negotiation hopes, something that financial markets refuse to put to bed. Despite the noise and the persistent bullishness, playing a 1.3200/1.3500 range still seems like the most sensible strategy until something concrete emerges from the talks.

Elsewhere, the Asian currency group remains subdued but is notable for its slow, yet remorseless, grind higher versus the greenback. USD/CNY has fallen to 5.5430 today, not far from the yuan’s recent highs around 6.5200. A weekly close below 6.5200 would signal another leg of yuan strength supported by an impressive yield advantage over the G-10 currencies.

The Australian and New Zealand dollars rose to near the top of their December ranges overnight. As proxies for the global recovery, both appear to be gathering strength for renewed rallies sooner rather than later. Any US dollar short-squeeze post the FOMC versus regional Asian or Australasian currencies is likely a dip-buying opportunity.

This evening’s heavy data calendar in the US could affect the US dollar, particularly Retail Sales for November and Markit Flash PMI’s for December. The highlight of the day is the FOMC policy meeting. I, and seemingly much of the market, expect the FOMC to shift their bond-buying emphasis to the longer end of the curve to cap recent rises in long-term rates. At a minimum, the markets will be hoping that even if the Federal Reserve does not choose that path tomorrow, they strongly signal their intention to do so in the New Year.

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
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)