The US dollar retreat continues

Hawkish ECB officials send EUR/USD higher

The US dollar fell overnight with hawkish inflation comments from European officials pushing the euro higher and leading the US dollar sell-off. The dollar index fell by 0.31% to 92.21 as currency markets, perhaps more than any other asset class, have placed their stall in a delayed taper. Asia appears content to wait Friday out ahead of the US data, with the index unchanged today so far.

EUR/USD rose 0.30% to 1.1875 overnight as inflation noise continued ratcheting higher. A rally through 1.1900 will signal a retest of 1.2000 next week. Sterling rose through its 200-day moving average (DMA) at 1.3810 overnight, on its way to a 0.47% gain to 1.3833. The close above 1.3810 is significant, especially as news outlets are running tax increase stories. Assuming a soft Non-Farms, GBP/USD could well test 1.4000 next week.

Both AUD/USD and NZD/USD outperformed overnight as risk appetite remains firm in currency markets. AUD/USD rose 0.45% to 0.7400, and NZD/USD rose 0.45% to 0.7110, climbing through its 100-DMA and closing just under its 200-DMA at 0.7115. With more vaccines on the way to Australia and Covid-19 cases falling once in New Zealand, there aren’t many reasons to be bearish. If New Zealand’s lockdown strategy continues to deliver, the RBNZ rate hike will be back on the cards in October. NZD/USD could rise to 0.7300 next week, assuming the Non-Farm Payrolls doesn’t upend the narrative.

USD/Asia is quiet today, as it was overnight, with Asian currencies mostly content to edge slightly higher versus the greenback. I expect that to remain the status quo for the rest of today’s session with the potential direction of US monetary policy of far more importance to regional Asia at this time than other areas of the world.

Currency markets look locked and loaded to deliver a further general US dollar sell-off into the end of the week and into next, as long as the US Non-Farm Payrolls come in on the soft to middling side. Therein lies the danger, though. If the data surprises to the upside, there could be a lot of painful US dollar short culling into the week’s end. Hurry up and wait is the preferred strategy.

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