Powell lifts the US Dollar.

A hawkish Jerome Powell overnight lifted US yields higher and saw a flight to safety in the US Dollar, allowing the dollar index to recapture much of its mid-week losses. Another night of Yuan losses also encouraged some pre-weekend defensive flows into the greenback. The dollar index fell below 100.00 earlier in the session, by reversed and rallied to finish 0.30% higher at 100.63 where it remains in Asia today. Support now lies at 99.80 and then between 99.40 and 99.55, while initial resistance remains in the 101.00 area.

Euro and Sterling both staged sharp intra-day recovery rallies overnight, with EUR/USD topping out ahead of 1.0950 resistance. Jerome Powell’s hawkish comments torpedoed the respective rallies and saw both currencies slump to small intraday losses. EUR/USD closed 0.22% lower at 1.0830, and GBP/USD finished 0.33% lower at 1.3025.

Both are steady in Asia. Aside from yield differential risks capping gains, both the Euro and Sterling face political risks now. Widening energy sanctions by Europe, and Brexit agreement challenges by Britain, and should cap any gains into the weekend. EUR/USD still risks a close below 1.0800 on a weekly basis which would be a very negative technical development. Only a close above 1.0950 eases that risk. Likewise, GBP/USD failed ahead of resistance at 1.3100 and could retest support at 1.2975.

USD/JPY rose 0.39% to 128.38 overnight as US yields climbed once again. In Asia, it is holding steady at 128.45. The still-overbought RSI means another correction lower is still not out of the question. But a dovish BOJ, combined with China spill-over effects means USD/JPY remain heavily skewed higher. Support remains at 127.00 and 126.00, with resistance at 129.50 and 130.00.

The sentiment-sensitive Australian and New Zealand Dollars both tumbled by 1.10% overnight, unwinding all the previous day’s gains. China concerns seem to be weighing heavily today as AUD/USD falls 0.30% to 0.7345, and NZD/USD slumps by 0.45% to 0.6702. AUD/USD trendline support is very close at 0.7335 today, and a daily close below will signal deeper losses to 0.7200 initially. NZD/USD remains in a technical bear market well below its breakout line at 0.6840. Failure of 0.6700 signals deeper losses below 0.6600 initially.

Onshore and offshore Chinese Yuan fell heavily again overnight, with the offshore CNH coming under particular pressure as international investors used it as a proxy for China’s growth concerns. USD/CNY rose 0.50% to 6.4500 overnight, gaining another 0.30% to 6.4700 in Asia, despite a neutral PBOC fixing. USD/CNH rose 0.53% to 6.4800, testing 6.5000 today before settling 0.20% higher at 6.4930. A rise above 6.5000 seems likely to happen sooner, with the PBOC seemingly happy to let the Yuan fall, boosting China exporters in a backdoor stimulus move.

The sharp fall by the Yuan again overnight heaped more pressure on regional Asian currencies, now facing headwinds from China slowdown fears, a weaker Yuan, and rising US interest rates. USD/KRW rose 0.70% overnight, gaining another 0.10% to 1243.10 today. USD/TWD has risen to resistance at 29.310 again with the price action suggesting the central bank might be around. has risen by 0.30%, USD/SGD and USD/IDR are steady, but USD/THB is edging towards 34.000 once again. The grim week for the Malaysian Ringgit continues as well, having lost over 1.50% this week. USD/MYR has gapped higher in Asia, rising 0.37% to 4.3050. I cannot see any particular reason why the Malaysian Ringgit is being singled out, but the technical picture suggests we will see 4.3500 soon. The travails of Asia FX this week are a theme I expect to continue for months to come.

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