US dollar higher, Turkish lire plummets
Despite the noise in equity and bond markets, currency markets seem content to consolidate the US dollar gains spurred by the spike in US yields last week. The dollar index finished almost unchanged at 91.91 on Friday, rising to 91.97 this morning.
Amongst the majors, sterling appears most under pressure, falling 0.50% on Friday to 1.5860, before edging lower to 1.5850 today. If the EU goes ahead with its threats to ban AstraZeneca vaccine exports to the UK, pressure on the sterling will increase. Much of the recent premium in the UK asset market is attributable to its success thus far in vaccination numbers. GBP/USD has edged back through its multi-month support line today at 1.3880, threatening a fall to 1.3600 initially.
Europe’s gunboat diplomacy will not leave it immune. EUR/USD has been in correction territory since the start of the month, and it has traced out a quadruple top just ahead of 1.2000. EUR/USD has fallen to 1.1870 today, with significant support at its March lows and its 200-DMA, lying at 1.1835. Further failure through 1.1800 threatens a deeper correction to 1.1600.
Amongst the commodity currencies, the USD/CAD came very close to tracing a bullish outside reversal day late last week, and USD/CAD continues to grind higher, trading at 1.2500 today. Similarly, both the AUD/USD and NZD/USD recoveries petered out at their downside breakout lines last week and have since retraced all of those gains. Both appear particularly susceptible to US dollar strength. Failure of support at 0.7600 and 0.7100, respectively, will herald deeper downside losses.
Asian regional currencies have retreated modestly versus the greenback today. The tribulations in the Turkish lira this morning perhaps weighing on EM generally. While the Chinese yuan remains steady on each side of 6.5000 though, the downside pressure in wider Asia EM will be limited. The path of US yield will continue to dictate sentiment in Asian FX markets.