Currency markets looking for direction

Currency markets remain in a holding pattern

Currency markets had another night of quite wide ranges, but ultimately closed once again not far from where they started. The currency space appears to have moved to the sidelines, for now, content to wait and watch for developments elsewhere for its next directional cues. The dollar index traded in a 50 point range overnight but ultimately finished just 0.205 higher at 98.60. The rally has continued in Asia, where US 10-year futures have fallen sharply (yields higher). That has pushed the dollar index up to 98.80 this morning. 97.70 and 99.50 remain the levels to watch for directional clues.

EUR/USD continues to trade each side of 1.1000, falling 20 points to 1.0980 in Asia.  EUR/USD remains midrange between critical long-term support at 1.0800, and resistance between 1.1150 and 1.1200. Short of a peace agreement arriving between Ukraine and Russia, the single currency will struggle to maintain gains above 1.1100 for now, with the rouble/gas situation another headwind.

GBP/USD fell 0.45% to 1.3200 overnight, easing to 1.3190 today. The UK Chancellor’s Spring statement contained a few tax-cutting goodies but appeared to have been priced in, as was the overnight inflation data. Sentiment seems to be swinging between a less hawkish and more hawkish Bank of England going forward, with moves in sterling reflecting those swinging sentiments. GBP/USD has nearby resistance at 1.3300, followed by 1.3400, with support at 1.3125 and major support at 1.3000. Like EUR/USD, I have doubts about sterling maintaining gains over 1.3300.

USD/JPY has stabilised at 121.25, where it remains today, thanks to lower US yields overnight.  US yields are rising in Asia today once again, and the topside pressure on USD/JPY is likely to resume if the well-supported 20-year auction overnight proves a temporary respite. USD/JPY remains on track to reach 122.00, and only a fall through 119.00 changes the bullish outlook.

The Australian and New Zealand dollars have given back all their overnight gains today, trading at 0.7470 and 0.6950 respectively.  The story is much the same in the Asian currency space, where a neutral PBOC USD/CNY fix gave no directional impetus. Lots of good news is baked into AUD and NZD prices, which are also being supported by AUD/JPY and NZD/JPY buying. That heightens the risk of a downside correction. Asian currencies are still trending weaker but appear to be pausing for now awaiting developments elsewhere.

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