US dollar eases in Asia

BoJ intervention boosts yen

The Japanese yen is once again driving the dollar index direction today. Having risen by 0.18% to resistance at 101.00 overnight, it has retreated by 0.28% to 100.71 this morning. The losses can be attributed to a yen rally as the BOJ intervenes to cap JGB yields and more currency watching-speak comes from Tokyo. The yen rally has had a spillover effect into the other major currencies, which has pushed the US dollar lower. The honeymoon is likely to be short, however. Support remains between 99.40 and 99.55, with initial resistance still at 101.00. The relative strength index (RSI) remains elevated, but ‘not extreme now’, lessening the likelihood of a major downward correction.

Both euro and sterling held steady overnight, despite probing the downside. EUR/USD fell to 1.0760 before rising to 1.0785. In Asia, EUR/USD and GBP/USD have piggybacked the rally of the Japanese yen, rising 0.30% to 1.820 and 1.3040. EUR/USD remains uncomfortably close to multi-year support at 1.0800, and GBP/USD is clinging to support at 1.3000. Material Russian military gains in Ukraine will set alarm bells, and sell off once again and a weekly closely below 1.0800 by EUR/USD will be an ominous technical development. It is hard to see how the single currency can ignore rising US yields versus perpetually dovish ECB for long either.

The Japanese yen selloff accelerated overnight, USD/JPY rising 1.50% to 128.90 as US yields rose once again, threatening a multi-decade breakout higher. That has pushed 10-year JGB yields to near the top of the BOJ’s 0.25% range, and it has intervened in the JGB market today. That, some currency rhetoric from Tokyo, and extended short-term long USD/JPY positioning, has allowed USD/JPY to fall 0.38% to 128.40 today. The RSI remains very overbought, and a deeper correction is possible to chop out the fast money. Its impact will be temporary though as the yen wilts in the face of a widening US/Japan rate differential. A weaker yuan also adds a headwind. Support remains at 127.00 and 126.00, with resistance at 129.50 and 130.00.

Both the Australian and New Zealand dollars are benefiting from the yen’s strength today as well somewhat counterintuitively, likely driven by the spillover rallies in EUR, GBP and CAD. Like those, the rally is going to be a temporary one. AUD/USD is holding hold above critical support at 0.7320, trading at 0.7415 today. NZD/USD has risen to 0.6760, but its technical picture remains grim unless it recaptures 0.6850.

The onshore and offshore USD/CNY and USD/CNH exploded through one-year resistance lines overnight, suggesting a new wave of yuan weakness is beginning. That was reinforced by a very strong USD/CNY PBOC fixing today at 6.3996 (6.3853 exp). It could well be that China will now use US dollar strength to weaken the yuan as a backdoor stimulus measure. Other headwinds remain a slowing economy compounded by Covid-zero policy risks leaving the government increasingly less wiggle room on all-out stimulus. USD/CNY should now target the 6.5000 region in the weeks ahead.

USD/Asia rose with USD/CNY overnight, led by losses from the SGD, KRW and MYR, the latter compounded by the oil price retreat overnight. Rising US interest rates already spelt challenges to Asian FX. If China is now embarking on a yuan-weakening path in a rear-guard action to support growth, Asian regional currencies now face even more challenges as their monetary policies diverge from the United States. More weakness lies ahead.

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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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