The spike in US yields across the curve overnight unwound early US dollar selling, sending the dollar index to a modest 0.24% gain for the day, closing at 102.41. US dollar strength continues in Asia, perhaps helped by BOJ comments that now is not the time to consider an easy monetary policy exit. The dollar index has risen by 0.20% to 102.60 today, climbing back above the pivot point at 102.35. Support/resistance lies at 101.30 and 102.70 and remains in a wide and noisy range.
EUR/USD finished slightly lower at 1.0695 overnight, as US yields capped an attempted rally through 1.0750. It has edged lower to 1.0685 in Asia. Resistance between 1.0770 and 1.0830 remains a formidable barrier, with support at 1.0650. With the ECB expected to swing to a tightening bias this week, losses should be limited unless US yields continue to march higher from here.
Sterling finished 0.30% higher at 1.2530 overnight as PM Johnson survived a leadership vote. It has fallen to 1.2505 in Asia though as US dollar strength continues. A rise through resistance at 1.2670 opens a potentially larger rally to 1.2800 and 1.3000, while the failure of support at 1.2460 could see sterling retest 1.2400.
A widening US/Japan rate differential overnight saw USD/JPY soar higher and has had the Bank of Japan making plenty of comments on the wires today. The BOJ’s comments that they will not change monetary policy are cancelling out any impact of “rapid yen fall undesirable” comments. USD/JPY rallied by 0.82% to 131.90 overnight, and it has gained another 0.55% to 132.60 this morning. USD/JPY should theoretically be on the way to 135.00 now, but it remains entirely at the mercy of the direction of US yields. If US yields retreat this week, USD/JPY could easily find itself back below 130.00.
AUD/USD has fallen through trendline support at 0.7195 this morning to 0.7175. Although AUD/USD has lost 0.50% over the last 24 hours, the move lower appears like markets trimming long positions ahead of the RBA, rather than a turn in sentiment. AUD/USD has support at 0.7150, with resistance between its 50/100/200-day moving averages (DMAs) between 0.7225 and 0.7255. It could trade both sides of that range post-RBA. A hawkish statement could see AUD/USD closer to 0.7300 by the end of the Asian day.
USD/Asia moved higher on Monday as US yields rose, but overall, there is no sign of panic, merely a technical move in response. That could all change by Friday if US yields are still above 3.0% and US inflation rises above 8.50%, but for now, US dollar strength is mostly playing out versus the Japanese yen. USD/Asia is slightly higher this morning, rising by around 0.20%.
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