The US dollar holds Friday gains

Asian currencies calm at start of week

Asian currency markets are quiet today with most of Europe being on holiday today except for the United Kingdom. On Friday, the dollar index rose by 0.30% to 90.02, despite US long-dated yields slipping. Much of the underlying US dollar strength can likely be attributed to weekend risk hedging after a volatile week across asset classes. I suspect that nerves surrounding the weekend crypto-currency session (well-founded) may also have encouraged markets to load up on US dollars.

That left the majors weaker versus the greenback, but still in consolidative ranges. The majors are almost unchanged in Asia. EUR/USD is at 1.2180, well clear of support at 1.2120. GBP/USD remains close to Friday’s close at 1.4150. Only a fall through 1.4000 changes its fundamentally bullish chart pattern. At 108.85, USD/JPY remains in a 108.50 to 109.50 no man’s land. The dollar index is unchanged from Friday at 90.02. A break of 88.60 or 89.30 will hint at the next directional move.

Notably, the Australian and New Zealand dollars remain vulnerable, suggesting that risk sentiment remains elevated under the calm surface of the financial markets. Dalian futures prices on iron, steel rebar and rolled steel tanked on the open, falling over 5.0% after China raised futures margins and signalled displeasure at speculative excess pushing up prices. They have since recovered but are still down for the session, possibly weighing on the Australian dollar. It is trading at 0.7720 today, only slightly lower, but not far from important support at 0.7680. A fall by AUD/USD through 0.7680, and NZD/USD through 0.7110 will signal another down leg and likely a deterioration in global risk appetite.

Asian currencies have a quiet New York session and are almost unchanged today, helped along by a neutral PBOC fixing at 6.4408 this morning. Signals from a PBOC official that the yuan should be allowed to appreciate, perhaps to offset higher commodity prices, have produced zero reaction in the currency market. The offshore USD/CNH, where one would expect a reaction to immediately show, remains at almost the same price as onshore USD/CNY, at 6.4320. It is likely to be a non-story unless other PBOC officials join the fray. With Europe on holiday today, the Asian FX space has a quiet 24 hours ahead of it.

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