US dollar grinds higher

US dollar holds onto gains

The US dollar has a choppy session on Friday, the dollar index spiking to 100.19 before retreating to finish just 0.10% higher at 99.84. In Asia, an uncertain outlook on multiple fronts has lifted it 0.10% higher to 99.93. US yields, notably long-dated ones, continue to grind higher and will backstop and fall by the greenback. It remains on track to test resistance at 100.50 later this week.

EUR/USD probed 1.0850 on Friday before rallying to finish unchanged at 1.0875. There are plenty of dark clouds on the horizon for Europe this week and any rally towards 1.0950 is likely to be brief. If the Austrian PM makes some peace in our time progress with Vladimir Putin, a relief rally is once again possible. Multi-year support at 1.0800 remains ominously close with risks skewed to the downside. A dovish ECB will compound the negative outlook for the euro. 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 tested support at 1.3000 on Friday but managed to close just above it. A daily close under 1.3000 signals another round of losses targeting 1.2850 and 1.2700.

USD/JPY left 0.50% higher in Asia as a Bank of Japan official remained dovish on monetary policy and said it could be eased if required. With the US/Japan rate differential soaring, USD/JPY has climbed to 124.90 today and a test of the 125.00 resistance seems imminent, followed by 125.80. Expect more “BOJ speak” above 125.00 initially. That said, any drop to 123.50 should find plenty of keen dip buyers.

AUD/USD and NZD/USD both fell on Friday as China and global growth risks deepened. NZD/USD, fell 0.65% to 0.6847, and has fallen another 0.25% to 0.6830 today. The NZD/USD faces a deeper downside this week if the RBNZ policy decision is not a 0.50% hike, and the statement is perceived as not hawkish enough. AUD/USD appears to be suffering some nerves today after a May election date was announced, with a change in government looking likely at this stage. A deteriorating China situation will weigh heavily on both antipodeans additionally this week.

Asian currencies weakened on Friday in New York time finally and fell again in Asia as USD/CNY rises 0.20% to 6.3720.  Fears around China’s growth outlook, and not rising US yields, are driving the weakness. USD/KRW has risen by 0.30%, USD/TWD by 0.35%, USD/SGD by 0.20% and USD/PHP by 0.75%, despite upcoming hawkish BOK and MAS policy decisions this week. It appears Asian currencies will move in lockstep with China’s Covid situation this week.

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