US dollar correction continues

US dollar retreats against majors

The US dollar fell once again against the major currencies as its downward correction continued. Notably, Asia FX made very limited gains overnight, and this US dollar move seems very much contained to the major currency space. The dollar index closed 0.53% lower at 107.41 overnight but traded in a very choppy 115-point range between 106.90 and 108.05. These mark initial support/resistance today. Above that, resistance is at 108.70, 109.30, and then 110.00. The drop to 106.90 overnight may have taken out many of the weak long positions, but should it fail again, the next target is the 1.0585 breakout point, followed by 1.0500. ​ In Asia, the dollar index is 0.12% higher at 107.53.

EUR/USD rallied to test 1.0200 intraday, only to retreat, finishing 0.56% higher at 1.0145. In Asia, it has edged lower to 1.0130. ​ The technical picture still suggests a correction back towards 1.0200 is possible, but only a sustained break above 1.0360 would suggest a longer-term low is in place. EUR/USD has support at 1.0000 and 0.9900/25. The single currency faces serious event risk in the latter half of the week, firstly from the ECB policy decision, and secondly, from Russian natural gas flows which are due to resume after pipeline maintenance.

GBP/USD rallied by 0.70% overnight to 1.1952, testing 1.2030 intraday. Like the euro, the extent of the intraday rally suggests that quite a lot of the weaker shorts were taken out, leaving positioning more balanced. It has support at 1.1870, 1.1800 and 1.1760, while resistance at 1.2060 and 1.2200 remains intact. A rise above 1.2060 suggests a larger rally to the 1.2400 regions, but it would take a sustained break of 1.2400 to call for a longer-term low by sterling. It is unchanged in Asia.

USD/JPY fell by 0.28% overnight at 138.15, where it remains in Asia as Japan returns from holiday. Thursday’s high around 139.40 is initial resistance, followed by 140.00. Support is at 137.40 and 136.00. Given the sentiment in the market this week, a fall in US yields this week could finally translate to a meaningful downside correction by USD/JPY, which is a crowded trade.

AUD/USD and NZD/USD finished sideways overnight, testing and failing ahead of resistance at 0.6850 and 0.6200, respectively, price action that mirrored EUR/USD and GBP/USD. AUD/USD has risen 0.25% to 0.6830 today, while NZD/USD gained 0.15% to 0.6165. Both currencies are showing falling wedge formations and a sustained break above 0.6850 or 0.6200 signals more gains ahead this week by the antipodeans.

The overnight retreat by the US dollar bypassed Asian currencies once again, which posted only modest gains. That suggests that China’s growth fears, and the impending widening of the US interest rate differential at the short end of the curve, continue to weigh on AsiaFX performance. Today, USD/Asia is barely changed from their overnight closes.

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