US dollar consolidates pre-FOMC

Dollar eyes FOMC rate decision

Currency markets had a choppy but ultimately range trading session overnight, as higher US yields once again supported the US dollar modestly, while pre-FOMC caution limited its gains. The Asian session is being marked by similar price action, the US dollar easing today as investors lighten their exposure. The dollar index fell towards 104.50 initially but rallied to close 0.26% higher at 105.47, before easing 0.20% to 105.27 in Asia. ​ The dollar index has support at 104.60 and then 104.00, with resistance at 105.70 and 108.00.

EUR/USD finished lower overnight after running out of steam ahead of 1.0500 as European natural gas prices surged and US yields marched higher. EUR/USD closed almost unchanged at 1.0415, gaining 0.19% to 1.0435 in Asia. EUR/USD has traced out support at 1.0400 and 1.0350, with resistance now ahead of 1.0500 and then 1.0650.

Sterling was an underperformer overnight as natural gas prices surged, the Northern Ireland Protocol continues to vex, the Scottish First Minister signalled she wants to hold a new independence referendum, and the street still errs towards just a 0.25% hike by the Bank of England tomorrow. GBP/USD fell 1.20% to 1.1995, trading in a nearly 300-point range and trading as low as 1.1935 intraday. In Asia, it has struggled to a 0.20% gain to 1.2015. Support is at the overnight low at 1.1935, with resistance at 1.2200.

USD/JPY rose by 0.77% to 135.45 overnight, as the BOJ intervened to cap JGB yields, while US yields moved higher once again. It has fallen back to 135.10 in Asia as US bond futures rally (yields lower). A 134.00 to 136.00 range should cover USD/JPY into the FOMC.

AUD/USD and NZD/USD fell around 0.75% overnight but have recovered some of those losses in Asia as position squaring dominates the session. AUD/USD has risen 0.40% to 0.6895, with support at 0.6850 and resistance at 0.6970. NZD/USD has risen by 0.15% to 0.6225. It has support nearby at 0.6200, and resistance at 0.6300.

USD/Asia has been noisy if ultimately sideways overnight and today in Asia. USD/KRW, and USD/TWD fell overnight, but reversed higher in Asia after a weaker PBOC CNY fix, leaving them almost unchanged over the last 48 hours. Conversely, USD/CNH and USD/CNY have fallen today to 6.7335 and 6.7200, with 6.7800 and 6.7600 continuing to cap gains this week respectively. USD/INR has fallen back to 77.950, but INR remains near record lows. Meanwhile, USD/MYR and USD/IDR remain at recent highs.

All-in-all, the price action remains quite messy in the G-20 space, with the US dollar maintaining most of its gains. The price action in the USD/Asia space is even messier, very choppy but ultimately consolidative for the US dollar. With such a mish-mash of price action in USD/Asia, watching from the FOMC side-lines is probably the most sensible strategy.

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