A mixed session for currencies

Dollar mixed versus majors

A slight easing of US yields overnight, and some profit-taking, pushed the dollar index slightly lower, falling 0.13% to 94.24, before recovering to 94.40 in Asia. As long as risk-aversion sentiment and the repricing of the Fed taper remain foremost though, the index remains on course to test 94.75 by next week.

The headline moves disguised quite a lot of jostling amongst the major currencies. USD/JPY has fallen 0.62% to 111.20, tracing out a double top at 112.05. A slight fall in US yields helped the yen but most of the fall in USD/JPY can probably be attributed to exporter selling and haven buying of yen by nervous Japanese investors. Only a fall through 110.50 delays the USD/JPY rally.

EUR/USD continued to edge further under the 1.1600 pivot level and is trading at 1.1575 today. Unless it recaptures 1.1650 in the next few sessions, technicals will continue pointing to a much larger move lower to 1.1200. Some EUR/GBP selling and GBP short-covering lifted GBP/USD to 0.35% to 1.3475 overnight, although GBP/USD has retreated in Asia to 1.3455. With the recovery rally running out of steam so quickly, the signs still point to deeper losses to the 1.3200 region. Only a rise through 1.3600 changes the bearish outlook. USD/CHF has fallen 0.30% to 0.9310 and it would appear haven-buying is helping to cap USD/CHF’s advance. It remains in a well-defined uptrend though, targeting 0.9480.

The sharp drop by AUD/USD and NZD/USD this week probably flushed out exporter buyers overnight as they rose by 0.70% and 0.50% respectively to 0.7230 and 0.6900. A slight weakening of the US dollar assisting. Both have edged slightly lower today and will continue to be buffeted by swings in risk sentiment. AUD/USD would have to rise above 0.7350, and NZD/USD above 0.7000 to change what is a very bearish outlook in the currency environment. NZD/USD may get help from the RBNZ next week if it finally hikes rates to 0.50%. However, that is likely to be reflected in AUD/NZD weakness with bigger forces driving the US dollar at the moment.

Asian currencies will not have stable PBOC USD/CNY fixes to lean on for support of the next week with China on holiday. Asia FX continues to trade to the weaker side versus the US dollar as markets reprice the reality of the Fed taper and higher energy prices weigh on the region. A soft Non-Farm Payrolls next Friday is likely needed to reduce the pressure on Asian currencies, as that would mollify Fed tapering concerns temporarily. Asian currencies are falling again today and it is notable that two of the worst performers are the Thai baht and Indonesian rupiah, which are amongst the most vulnerable to a Fed taper. USD/THB and USD/IDR have risen by 0.40% today to 74.254 and 14,315.00. Interestingly, USD/PHP continues to find resistance ahead of 51.00 while THB and IDR retreat, suggesting that the BSP remains on the offer for now.

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