The US Dollar rebounds on firm PPI

The US Dollar resumed its rally overnight after a slight correction lower the day before. Above expectation, PPI numbers had the taper-talk running hot again, enough to support US yields and see the dollar index climb 0.11% to 93.00 overnight. The 92.60 and 93.20 levels remain the key near-term support/resistance levels to watch.

Overnight, EUR/USD edged lower to 1.1735, rising to 1.1738 this morning but remaining within its recent 1.1700 to 1.1750 trading range. However, the night’s big loser was GBP/USD, which fell 0.42% to 1.3808 before settling at 1.3814 today. That fall came despite better than forecast UK GDP data overnight, with perhaps the slowing Industrial Production and Manufacturing and Construction Output to blame. That triggered some quite heavy EUR/GBP buying, by the looks of it, pushing GBP/USD lower. The technical picture has swung negative now after GBP/USD failed to recapture 1.3900 this week. GBP/USD is now in danger of breaking nearby support at 1.3800 and 1.3777, the 200-day moving average. (DMA) A weekly close below the 200-DMA would signal a deeper decline to the 1.3600 area.

The USD/CNY is holding steady once again in Asia at 6.4775, but other regional currencies, having held their own overnight, have resumed their decline today. As the Kospi falls, USD/KRW has risen by 0.70%, suggesting foreigner selling ahead of the weekend. The government’s virus warnings ahead of the long weekend seem to be playing their part. USD/THB has risen 0.60% to 33.282 and given its poor run of data and virus situation, cases hitting a second consecutive daily high. Traders appear to be reducing exposure ahead of the weekend.

USD/PHP and USD/TWD are both 0.15% higher, while USD/SGD, USD/MYR and USD/IDR are slightly higher but steady at 1.3585, 4.2350, and 14,386.00, respectively. Investors appear to be preferring the safety of the greenback into the weekend, with China and virus nerves spurring a hunt for safer waters.

I expect US Dollar strength to persist into the end of the week and continue into next week as the Fed tapering bells continue ever louder and the world continues to price in diverging monetary policy.

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