US dollar strengthens overnight

Inflation jitters boost US dollar

Pre-US inflation nerves triggered a wave of risk aversion in equity markets overnight, which translated into haven inflows to the US dollar, which booked gains in the DM and EM space. The dollar index leapt 0.74% higher to 1.0330 overnight, although the rally’s scope was flattered by the euro sell-off, the index’s largest component. How the euro performs today will dictate whether we have seen a low put in place or not. Higher US inflation tonight should lift the US dollar, with a lower print seeing renewed selling as Fed hiking expectations are pared. The index is almost unchanged in Asia, and has resistance at 104.00, with support at 1.0285.

EUR/USD slumped by 0.91% to 1.0620 post-ECB, adding a modest 0.13% to 1.0630 in Asia. EUR/USD may come under further pressure today if Eurozone sovereign spreads widen or if US inflation prints above forecast. Support at 1.0650 overnight becomes nearby resistance, while the 1.0770 and 1.0830 zone remains as formidable as ever. Support is between 1.0610 and 1.0600, and failures signal a retest of 1.0500 early next week. ​

Sterling fell 0.32% to 1.2500 overnight, where it remains in Asia. Economic worries, leadership concerns, and the Northern Ireland protocol continue weighing on the sterling. Resistance is at 1.2600 and 1.2670. Support is still at 1.2460 and 1.2400.

USD/JPY endured a torrid session overnight, selling off from 134.10 to near 133.20 at one stage, likely on EUR/Yen selling. Firm US bond yields saw it recover all those losses to finish almost unchanged at 134.35. Some long-covering today has seen it ease back to 134.15 in Asia. The Bank of Japan is unlikely to change policy next Friday post-FOMC, which will have hiked another 0.50%. The US/Japan rate differential should ensure that USD/JPY does not fall much further than 133.00 today, with its next target being 135.00. Soft US inflation though, could spur a US bond rally and see an abrupt fall by USD/JPY.

The price action on the Australian and New Zealand dollars was ugly overnight. AUD/USD fell 1.30% to 0.7100, where it remains in Asia. NZD/USD fell by 1.0% to 0.6385, before edging up to 0.6400 in Asia. A combination of US inflation concerns and renewed mass testing in Shanghai seem to have created a toxic risk sentiment cocktail for the Australasians. Both remain acutely vulnerable to negative developments on both fronts. AUD/USD support resistance is at 0.7050 and 0.7200. NZD/USD support/resistance is at 0.6300 and 0.6450.

USD/Asia strengthened overnight with the KRW the worst performer, losing over 0.55% to 1263.80. Asian currencies are steady in Asia after the PBOC set a neutral USD/CNY fix at 6.6994, but several currencies are near their recent lows versus the US dollar. USD/MYR is near 4.4000, USD/PHP is just below 53.00, USD/THB is 0.20% higher today at 34.640, and USD/INR is once again testing resistance at the 77.80 region. A high US inflation number today likely spurs another wave of Asian FX weakness to round out the week.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.

He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.

A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.

He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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