Fading sentiment, fading US dollar

US dollar under pressure

The US dollar underperformed last week as US bond yields continued to fall. Notably, US yields staged a corrective jump on Friday, the first in eight sessions, yet the US dollar continued to move lower. That suggests that Friday’s US yield jump is temporary, and that momentum has well and truly turned for now for the firmer US dollar trade. Fading expectations about the pace of the global reflation trade appear to be the main culprit, although I suspect technical issues in the US bond market, capping yields, are also playing their part.

 

Having topped out just above 92.80 last week, the dollar index has fallen to 92.17 as of this morning in Asia, falling by 0.27% on Friday. The 91.50 level looms as the critical support/pivot point for the index now. A daily close below 91.50 and its 100 and 200-day moving averages (DMAs) just below will signal an extended period of dollar weakness that would target 90.00. That said, nerves ahead of the US CPI data tomorrow should limit the downside for the greenback for now. An EM equity washout this week would also limit losses there, with the greenback most likely to feel the pressure versus the major currency space.

 

EUR/USD still languishes at 1.1870 today, ahead of inflation data tomorrow as well. EUR/USD needs to close above 1.1900 to regain upward momentum. GBP/USD looks more constructive at 1.3890 today, with UK data expected to be positive this week. A close above 1.3900 this evening sets the scene for a test of its main pivot level at 1.4000 later this week.

 

Although Asian currencies have regained some lost ground versus the US dollar over the last week, they face data-related challenges in the coming week. Suppose China, India, Malaysian, Singapore, and Indonesian data suggest that the regional recovery pace is slowing or has halted. In that case, the AFX space is likely to retreats versus the greenback as investors rotate into the DM space. Similarly, a US Core CPI print above 4.0% will increase concerns that US monetary policy, and Asian monetary policy, will soon diverge in their respective tracks. Again, that risks AFX underperformance versus the greenback.

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 as well as in leading print publications including 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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