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US Dollar Is In Full Retreat

US dollar broadly lower against G-20 currencies

The successful conclusion by the European Union of its pandemic recovery package has finally opened the sluice gates of US dollar weakness. The US dollar is falling sharply versus the G-20 with AUD, EUR and GBP all notable outperformers. The dollar index fell 0.68% to 95.18, falling again to 95.10 this morning.

Several major currencies have now made technical breakouts. AUD/USD rose 1.60% to 0.7125, consigning previous resistance at 0.7020 to history. AUD/USD now targets 0.7200 and then 0.7300. EUR/USD has risen 0.70% to 1.1540 with a technical target of 1.1800. GBP/USD has risen by 0.70% to 1.1720, with the chicken bones on the charts implying a target of 1.3000.

It is much the same story across the globe with USD/CNY taking out support at 6.9800, setting up further CNY gains to 6.9500. Having mentioned the laggards of South East Asia yesterday, the US dollar rotation has duly washed up on their shores, with SGD, MYR, THB and IDR all outperforming.

The Indonesian rupiah, in particular, has gapped 1.25% higher to 14,640.00 this morning. Having fallen nearly 7.0% since mid-June, after the central bank directly monetised part of a government bond issue, today’s rally will be a welcome respite. One suspects that the Bank of Indonesia has been selling US dollars to help things along. Of the fragile four, Indonesia remains the most vulnerable for several reasons. USD/IDR has support at 14,456.00, its 50 and 200-day moving average (DMA). Pushing USD/IDR back under that level will probably be Bank Indonesia’s first order of business. With Covid-19 still rampaging across Java though, nagging doubts from its economic impact will mean the rupiah will continue to underperform its regional peers.

US dollar weakness has continued across both major and regional currencies in Asia today. After a long range-trading slumber for the past month, currency markets have finally awoken, with some real momentum behind the rotation out of US dollars and into recovery positioning. We would expect that to continue into Europe, and indeed, for the rest of the week. Only a failure by Washington DC to agree on a new fiscal stimulus package looks able to chop the legs from the dollar rotation for now. With an election in the US in four months, both sides have a massive incentive to get something over the line though.

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