The US dollar continues to squeeze higher
Rising US yields saw the US dollar continue to squeeze higher on Friday, with the dollar index rising 0.30% to 90.10. That theme has continued today, with the dollar index marching another 0.35% higher to 90.40 in Asia. The dollar index has critical resistance at 91.00. A daily close above that level signals that the US dollar short squeeze had the potential to extend much further.
The pro-cyclical Australian and New Zealand dollars have both lost 0.65% today and broken technical supports in the process. The AUD/USD has moved through support at 0.7750 to 0.7705 today, signalling further losses to 0.7600 initially. NZD/USD’s fall to 0.7200 broke technical support at 0.7240, signalling further losses to 0.7000.
USD/JPY had risen 0.20% to 104.15 today, 160 points higher than its lows last week. It is clear that the widening interest rate differential is behind the rally by USD/JPY, which is now approaching resistance at 104.50, a downtrend line that dates back to July 2020. A rise through the 100-day moving average, just behind at 104.75, signals further gains by USD/JPY to 106.00 and potentially 107.00.
In Asia, regional currencies are all in retreat, notably the Indonesian rupiah which has fallen 1.05% to 14,125.00 today. USD/SGD has risen 0.45% to 1.3315, with USD/MYR rising 0.25% to 4.0400. USD/CNY has risen 0.20% to 6.4850 after the PBOC left the official fix almost unchanged at 6.4764. At this point, a move higher by USD/CNY through 6.5600 would be required to signal that the yuan’s 7-month rally has ended for now. Regional currencies are likely to remain under pressure for the rest of the session, as equities retreat and concerns rise over what surprises the White House may throw out this week.
The US dollar rally should continue in Europe where EUR/USD suffered a sharp reversal on Friday, falling through monthly support at 1.2250, to 1.2220. It has declined 0.50% to 1.2270 this morning, and its losses could extend to 1.2000 in the coming days. By contrast, sterling fell only modestly to 1.3550 on Friday, although it has retreated another 50 points to 1.3500 this morning. A loss of 1.3400 would signal a much deeper correction to long-term support at 1.3175, its trendline and the 100-day moving average.
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