Euro and yen retreat
With liquidity reduced by a Japan holiday today, Asian markets have seen a wave of US dollar long-covering giving some well-overdue relief to the major and regional currencies. The overnight session was notable for the pounding once again, of the Japanese yen and euro as the dollar index tested 104.00 intraday, before finishing 0.65% higher at 103.67. The dollar index has eased by 0.16% to 103.50 in Asia. The US dollar fall in Asia looks very much corrective, and not a turn in sentiment. We can expect distortions today as well from month-end rebalancing flows from institutional investors.
The dollar index remains on track for a weekly close above 103.00, the top of a multi-year symmetrical triangle. That suggests a new wave of US dollar strength in the months ahead targeting a move above the 120.00 region. In the short-term, resistance is at 104.00, with support at 101.00 followed by 99.75. The index is severely overbought on short-term indicators, so a deeper correction in the weekend is entirely possible.
EUR/USD remains under pressure, shrugging off the rouble gas payment news and trading as low as 1.0470 overnight, finishing 0.56% lower at 1.0500. It has booked a small gain to 1.0515 but the failure of the multi-decade decade support line at 1.0800 is a significant bearish development. A weekly close below 1.0800 consolidates that view. Although a short-term relief rally is not out of the question thanks to the oversold short-term technical picture, EUR/USD remains on track to test 1.0300. The response of European officialdom to the alleged plan to pay for gas in roubles and any indications of a Europe oil ban on Russia will likely dictate if parity is tested in the weeks ahead.
GBP/USD traded as low as 1.2425 overnight, finishing the day 0.70% lower at 1.2460. In Asia, it has gained 0.29% to 1.2488 as some long-covering of US dollar positioning occurs into the weekend, with month-end flows also in play. Any relief rally will be short-term as the broader technical picture is now signalling further losses to 1.2200 and potentially sub-1.2000 in the weeks ahead. GBP/USD would need to reclaim 1.2970, and then 1.3050 to change the bearish outlook.
AUD/USD has reversed its overnight losses on short-covering today, rising 0.50% to 0.7130. The rally remains unconvincing with resistance at 0.7200 and support at 0.7050. NZD/USD rose to 0.6505 today, having tested 0.6450 overnight. Unless global risk sentiment swiftly reverses, both AUD/USD and NZD/USD are on track to test support at 0.7050 and 0.6525 respectively next week. The RBA and election nerves will limit AUD gains over the next couple of weeks, but the New Zealand dollar still looks like the most underweight lamb in the paddock.
USD/Asia is a mixed bag today. USD/CNY and USD/CNH shot higher once again overnight and remain 0.15% higher in Asia at 6.6350 and 6.6710 respectively. The reiteration of commitment to Covid-zero policies by officials today has quickly offset a generally weaker US dollar in Asia. With PMI data over the weekend and holidays next week, the offshore USD/CNH, faces substantial upside risks.
Regional currencies have booked some gains on US dollar long-covering today ahead of the weekend. Leading the pack is USD/KRW, which has fallen by 0.45% to 1266.65 today after government officials threatened intervention if the won moved too quickly. Elsewhere, regional currencies have booked modest gains of between 0.10% to 0.20% in quiet trading as books are trimmed ahead of a heavyweight holiday schedule next week.
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