US dollar holds onto gains
Currency markets had a choppy night with decent ranges seen across the majors. Ultimately though, despite all the noise, markets settled fairly close to where they had started. The dollar index closed 0.10% higher at 99.75 with US dollar strength persisting as US long-dated yields edged higher removing inverse yield curve nerves. The dollar index has climbed to 99.85 in Asia, and I expect weekend risk-hedging to be US dollar supportive today. A weekly close at these levels implies further gains targeting 100.50 next week.
EUR/USD eased 0.16% lower to 1.0880 overnight, falling another 0.14% to 1.0863 in Asian trading. A weekly close at these levels would be ominous for the single currency, with multi-year support close by at 1.0800. Failure signals more losses to 1.0600 and 1.0300 initially. Resistance is now at 1.1200, with longer-term resistance at 1.1300. Sterling, meanwhile, has consolidated at 1.3070 this week but a loss of 1.3000 signals another round of losses targeting 1.2850 and 1.2700.
USD/JPY edged 0.15% higher to 123.97 overnight, popping up to 124.25 today before retreating to 123.95. If seems when, and not if USD/JPY will retest 125.00 now. That may have to wait until next week, though, as traders don’t seem keen on risking BOJ-speak above 124.00 for now, especially with momentum in other major currencies muted today. That said, any drop to 123.50 should find plenty of keen dip buyers.
AUD/USD and NZD/USD have edged lower overnight to 0.7480 and 0.6880 and upward momentum seems to have stalled for now. Failure of supports at 0.7450 and 0.6865 will signal a deeper correction with a lot of good news priced into both currencies. The NZD/USD faces deeper downside risks next week if the RBNZ policy decision is not a 0.50% hike, and the statement is perceived as not hawkish enough.
Asian currencies remain Sleepless in Singapore overnight, with another neutral USD/CNY fixing by the PBOC continuing the sideways consolidation. Some weakness has crept into regional currencies today, led by the THB and the NTD as the US dollar has strengthened across the board in Asia. I suspect ongoing China Covid-zero concerns and weekend Ukraine/Russia risk hedging are the cause of the cautiousness today.