US dollar remains elevated

Investors snap up safe-haven greenback

The US dollar soared on haven flows as Russia commenced its invasion of Ukraine yesterday. However, DM currencies rallied later in the session after the announcement of the next tranche of Western sanctions. Although the relief rally mirrored equities to some extent, the US dollar still held onto much of its early session gains, with the dollar index closing 0.90% higher at 97.05. Further long covering has pushed it slightly lower to 96.95 in Asia. The index spiked to 97.70 intraday and that remains initial resistance, with a failure of 96.50 likely to spark a deeper correction. US bond yields (prices fell) recovered their early falls overnight, and this will provide some support to the greenback.

EUR/USD plummeted to just shy of 1.1100 overnight before removing to 1.1200, taking back half of its intraday losses. 1.1100 is now support for the single currency, although it will need to reclaim 1.1300 to set up a meaningful recovery. Likewise, GBP/USD sank to near 1.3250 before recovering to 1.3410 as of this morning. 1.3250 and 1.3500 are support/resistance for sterling now. Both currencies, with their high correlation to the Eastern Europe situation, are vulnerable to sudden moves down on negative headlines around Russia and Ukraine. But both may have traced out medium-term lows overnight if we are indeed at peak-sanctions.

USD/JPY moved higher towards 115.50 overnight before falling to 115.20 in Asia. Only a fall through 114.50 signals a deeper correction as Japanese investor flows head offshore in a search for yields as the BOJ remains firmly on hold. The CNY and CNH have strengthened overnight thanks to the capitulation of non-dollar components of the basket and, I suspect, haven flows from regional investors. I expect those haven flows to keep the yuan firm in the coming week.

Elsewhere, regional currencies had a torrid session overnight and remain on the back foot this morning. A rush to haven assets partly explains the overnight risk rally passing them by. But with most of the region a massive importer of energy, raw materials, and food, and all of those prices remaining at recent highs, Asian currencies will remain challenged as supply disruption and pricing fears persist.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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