US dollar pares gains after Bostic comments
Currency markets had a volatile overnight session, the US dollar racing higher initially, before the rate-hike comments from the Fed’s Bostic stopped the rot, causing US yields and the greenback to unwind their intraday gains. The dollar index finished just 0.10% higher at 103.75, having probed above resistance at 104.00 intraday. In Asia, some bottom-fishing is evident as US equity futures and bitcoin rally. That has seen the dollar index ease by 0.16% to 103.59. Support at 102.50 remains intact. A close above 104.00 will signal rapid gains to 105.00 and in the bigger picture, the technical picture still says a multi-month rally to above 120.00 is possible.
EUR/USD and GBP/USD finished sideways overnight after trading in over 100 pip ranges overnight, endemic of the uncertainty and resultant tail-chasing out there. The dollar correction this morning has lifted EUR/USD 0.14% higher to 1.0575, and GBP/USD 0.27% higher to 1.2360. Concerted breaks of 1.0600 and 1.2400 could see the correction extend another 100 points higher for both, but the medium-term technical picture remains grim.
The easing of US yields overnight stopped the USD/JPY rally just above 131.00 and it is trading unchanged at 130.40 in Asia after the New York late retreat. USD/JPY direction remains at the mercy of the US/Japan rate differential, especially as a Japanese official reiterated the BOJ’s dovish stance this morning. Support lies at 128.50, but a rally by USD/JPY through 131.35 sets the stage for a move to the 135.00 area.
Asian currencies remained under heavy pressure overnight, with the RBI intervening to sell USD/INR yesterday afternoon to cap USD/INR gains. I suspect they weren’t the only Asian central bank around on the topside yesterday. The retracement lower by the US dollar late in New York has carried on into Asia giving Asian currencies some respite. Bitcoin is rallying impressively, and it could be that some cross-margining pressures in other asset classes have been reduced, allowing the dollar to fall slightly. It is likely to be the eye of the storm, however, and lower Asia FX remains the path of least resistance, caught in a vice between higher US yields and a China slowdown.
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