US dollar is modestly lower

US dollar pauses after rally

The dollar index fell slightly overnight as some profit-taking of Friday’s monster US dollar rally set in as the new wires stayed relatively quiet. The dollar index fell 0.17% to 96.50, edging lower to 96.46 in sedate Asian trading. I expect the chop-fest to continue, with a move through either 96.00 or 97.00 indicating the US dollar’s next directional move.

EUR/USD staged a modest technical recovery, rising to 1.1285 by this morning, with 1.1200 to 1.1350 likely to contain this week. GBP/USD has continued falling to 1.3215 today as its virus situation and political turmoil weigh. Failure of 1.3150 will signal a potential test of 1.3000. With US yields hardly moved overnight, USD/JPY remains marooned at 113.70 – bring a good book to read.

Notably, the risk-sentiment three amigos, the CAD, AUD and NZD, didn’t rally at all on US dollar weakness overnight elsewhere and remain near year lows  That suggests that markets remain vulnerable to more virus headlines and that dips in the US dollar may be shallow.

Asian currencies have had another mixed performance. The yuan continues to strengthen despite weaker fixes from the PBOC. The Indian rupee, notably, gained some respite on US dollar weakness. The firm Chinese yuan and diminishing holiday season liquidity are dampening activity in the regional Asia FX space, and I expect range trading to dominate over the rest of the week.

Looking ahead, this week’s US events could have a significant impact on the movement of the dollar. On Wednesday, there is some old news from Q3 GDP and PCE Prices, followed by the far more relevant US Personal Income/Spending and Durable Goods for November, plus the weekly Jobless Claims, on Thursday. There is also a swath of minor inflation data released from around the world that will probably only be interesting if it shows large falls that aren’t due to baseline effects. Otherwise, US politics and virus headlines will continue to dominate proceedings.

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