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The US dollar falls with US yields

FOMC meeting looms

US long-dated yields eased once again overnight, possibly driven by the US Senate bi-partisan infrastructure impasse. More likely, position adjustments ahead of the FOMC outcome this evening drove the realignment, with euro and sterling strength, once again, leading US dollar weakness. Notably, regional Asian currencies and the antipodeans show only very modest gains versus the US dollar, suggesting that delta-variant and China nerves remain very much front and centre for investors in Asia.

 

The dollar index fell 0.17% to 92.31 overnight, breaching technical support at 92.55. A suitably dovish FOMC this evening should see the index continue lower, potentially testing support at 92.00. Support at 91.50, which is also the 100-day moving average (DMA), remains the index’s medium-term pivot level.

 

EUR/USD has now traced out firm support at 1.1750, and its overnight rally to 1.1830 leaves it in sight of resistance at 1.1850. A close above 1.1850 targeting 1.1975. Sterling continues to outperform, receiving a boost by a suspension of hostilities with the EU over Northern Ireland and its intention to start accepting fully vaccinated tourists from the US and Europe without quarantine. Sterling rose 0.45% to 1.3880 overnight, not far from resistance at 1.3910, also its 100-DMA. A close above 1.3910 will signal a further rally to test the much more important 1.4000 regions.

 

The ructions in the China stock markets saw the Chinese yuan fall quite rapidly yesterday, USD/CNY rising 0.44% to 6.5100, finally breaking out of the near two-month 6.4500 to 6.4900 range. USD/CNY has fallen to 6.5050 this morning as local media reports stabilise stock markets, but the cross has now made a substantial technical break above 4.4900, which should limit any pullbacks for now. That is quite some distance above today’s USD/CNY fixing at 6.4929 and reflects investors’ opinion that CNY outflows will increase due to the ever-expanding government clampdowns on various sectors.

 

The fall of the yuan overnight will keep the pressure up on ASEAN currencies as well, which are also contending with the delta-variant discount. I expect currency markets to range ahead of the FOMC as traders reduce risk into the meeting outcome tonight. All things remaining the same with the FOMC, US dollar weakness versus the major currencies should resume, but Asia’s own issue will keep up the pressure on local currencies.

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 [4]

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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