The US Dollar rallies impressively

I got the US Dollar direction very wrong yesterday, as US markets returned with their risk aversion hats on. That saw US yields move higher across the curve, ahead of some heavyweight auctions this week. Higher yields, and a cautious tone of equities, where recovery concerns prevailed, saw a flight to safety, pushing the US Dollar sharply higher. The dollar index leaping 0.35% to 92.52. The longevity of the US Dollar rally will now depend on whether yesterday just post-holiday blues, or about the start of deeper concerns regarding the US recovery. That makes the move higher by US yields overnight even stranger. With one eye on potential whipsaws, I will content myself to call 92.00 to 93.00 as the dollar index trading range for the rest of the week.

EUR/USD fell 0.25% to 1.1845 overnight, where it remains today. Although it failed at 1.1900 on Monday, I do not foresee the 1.1750/1.1800 region failing. A dovish taper by the ECB tomorrow should be bullish for the single currency. GBP/USD tumbled 0.37% to 1.3780, buffeted by Government tax increase announcements and a stronger greenback. GBP/USD closed below support at 1.3800 overnight, breaking through a support line at that level and its 50 and 200-day moving averages. (DMAs) Its situation looks more perilous than the Euro’s, and the charts suggest losses could extend to 1.3700 this week.

The souring of risk sentiment saw AUD/USD fall 0.70% to 0.7385, while NZD/USD fell by 0.50% to 0.7100. Both are unchanged in Asia and are sitting in short-term support zones. Further, US Dollar strength could extend losses to 0.7300 and 0.7000 in the near term, although I would prefer to see 0.7375 and 0.7080 comprehensively broken before giving up on the bullish outlook. 

USD/CNY has edged higher to 6.4640 today after a neutral PBOC fixing. USD/CNY continues to give no insight or hints to the PBOC’s thinking on a daily basis, and although regional Asia FX retreated overnight, it did so only modestly. Most of the US Dollar strength being reflected in the G-10 space. The Asian FX solidity is a cautionary note for US Dollar bulls elsewhere now. Hinting that the US Dollar strength seen overnight in the G-10 space could be just a short-term sentiment swing.

We will have to wait for New York to arrive this evening to gain more clarity. That likely explains why the G-10 and regional currencies have hardly moved in Asia today. It seems that forex traders in the region agree with me and would prefer to wait and see.

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