Dollar jumps on US Retail Sales

US retail sales give US dollar a taper boost

The US dollar roared back to life overnight as the much higher retail sales data put the Fed taper back in the centre of attention. The dollar index rose 0.42% to 92.87 before edging lower in Asia to 92.84. Unless European inflation data contains a mighty upside surprise, it is hard to see the US dollar retreating far, and a test of resistance at 93.00 and 93.20 looks most likely.

EUR/USD fell 0.40% overnight to 1.1770 where it remains in Asia. Having tested 1.1750 overnight, this is initial support today with rallies likely limited to 1.1800. GBP/USD has fallen to 1.3800 and has support at 1.3760, while resistance is not formidable at 1.3900 after multiple failures. The highly correlated to risk sentiment AUD and NZD retreated overnight. AUD/USD is hovering at support at 0.7300 this morning, while NZD/USD is just shy of support at 0.7070. If Fed tapering nerves continue into the New York session – not a given after a flip-flop week- both Antipodeans could potentially fall another 70-100 points into the close of business.

Unsurprisingly, regional Asian currencies fell heavily versus the US dollar overnight, with Asia perhaps the most sensitive region on the planet to the prospects of a Fed taper starting at the end of the year. The Korean won has tumbled by nearly 1.0% over the past 24 hours to 1178.00 this morning, the taper-nerves exacerbated by a tough couple of days on the North Korean front. A further rise towards 1185.00 is likely to bring the Bank of Korea out to sell dollars. USD/MYR also broke higher overnight to 4.1700, clearing previous resistance at 4.1600 easily. It now targets further moves higher to 4.2000. USD/CNY fell to 6.4300 overnight before sharply reversing higher to 6.4500 after the PBOC set a neutral fix at 6.4527. It seems that with public holidays next week, and golden week at the start of October, the PBOC is determined to mute any tapering, Evergrande or policy-induced volatility in the currency.

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