The US dollar reverses losses

Dollar recovers on Russia-Europe energy spat

The US dollar rebounded overnight as the energy payment standoff with Russia and Europe took a turn for the worse, and quarter-end demand for US bonds boosted dollar demand. The dollar index rose 0.52% to 98.35, adding another 0.13% to 98.48 in Asia. Some weekend risk-hedging buying could well be supporting the greenback in Asia. Support at 97.70 has held nicely, forming a rough triple-bottom. That support level remains key to the US dollar’s direction into next week.

EUR/USD retreated overnight as the euro/rouble payment standoff with Russia became murkier. Markets were lulled into complacency by Ukraine/Russia negotiations, while President Putin telling the German Chancellor it was ok to pay in euros, only to reverse that overnight, sent a curveball to the single currency while giving a harsh lesson on caution regarding anything that Russia says. EUR/USD fell 0.82% overnight to 1.1067 where it remains in Asia. EUR/USD remains stuck at the bottom of its overnight range and the risks have now skewed to the downside once again. Immediate support/resistance are 1.0950 and 1.1200.

It looks like the sell-off in USD/JPY was in no small part due to financial year-end repatriation flows, as the pair has sharply reversed yesterday’s losses in Asia. USD/JPY has jumped 0.77% to 122.63 today, despite some oblique jawboning by Japanese officials. US yields may have dropped slightly, but so have Japanese ones after the BOJ operations this week. The US/Japan rate differential trade is back with a vengeance today. Key levels are 121.25 and 123.25.

Soft Asian PMI data and a stronger US dollar have seen Asian currencies in retreat today with USD/NTD rising 0.30% to 28.697, and USD/THB rising 0.33% to 33.378. USD/KRW is also 0.20% higher at 1215.80, meaning the main beneficiaries of a weaker US dollar this week are all quickly reversing those gains. USD/CNY has fallen to the bottom of its 6.3400 to 6.3900 range, and it will be interesting to see if authorities set a series of weaker CNY fixes next week, having signalled that CNY’s rally had gone far enough. From here I expect Asian currencies to mark time until tonight’s US data. A strong US Non-Farm release likely sees Asian currencies resume their downtrend next week.

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