US dollar marks time

US dollar directionless

With US yields ranging overnight, the US dollar gained precious little direction on a slow news night. Despite the noise in equity markets, the dollar index rose just 0.13% to 91.20 in a non-descript session. The greenback’s fall from grace in my absence has mirrored the fall in US longer-dated yields, and I expect that correlation to continue. The dollar index looks set to range between 91.00 and 91.50 with a bias to the downside.

The technical picture is more unequivocal with falling wedges the name of the game. EUR/USD, GBP/USD and AUD/USD have all broken higher out of falling wedge formations, strongly bullish indicators. Although, as usual, Asia has contented itself to wait and see with the dollar index and the majors almost unchanged today. EUR/USD is trading at 1.2030 and looks set to test its 100-day moving average (DMA) at 1.2060 once again this afternoon. GBP/USD, meanwhile, is on the verge of recapturing its multi-month upward channel if it can rise through 1.4000 today. AUD/USD has nearby support at 0.7700 with resistance at 0.7800.

The fall in the US 10-year yield has been kind to regional Asian currencies, which have mostly rebounded strongly over the past few days as lower yields led to dollar weakness. The notable exception is the Indian rupee, which remains under pressure around 75.500 as the country’s Covid-19 situation deteriorates badly. A clearly unprepared government that appears rudderless in the face of the Covid-19 wave means the rupee will remain under pressure. The present situation will also complicate the stagflation situation in India, another negative. I remain confident that USD/IDR will test 76.000, although I would be happy if I am wrong as that likely signals an improving situation.

Notably, the heightened sense of risk aversion sweeping equity markets has not materially impacted the risk-barometer Australian and New Zealand dollars. That implies that the greenback’s 10-year note correlation remains as strong as ever and will dictate the greenback’s overall direction.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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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