ECB meeting a sleeper
The ECB policy meeting failed to shake up volatility in currency markets, something I got badly wrong yesterday. With the meeting passing without incident, currency markets settled into a directionless range-trading session, with the US dollar content to continue consolidating recent gains. With no direction from North America, and a Japan holiday reducing liquidity anyway, the Asian session is off to an equally quiet start which will likely be the tone for the remainder of the Asian day.
EUR/USD is at 1.1775 this morning, not far away from support at 1.1750. A dovish ECB still leaves the single currency with a downside bias with failure of 1.1750 signally a retest of 1.1700. Only a rally through resistance at 1.1850 will change the outlook. GBP/USD closed above its 200-day moving average at 1.3708 overnight, continuing its quite impressive recovery. GBP/USD is at 1.3770 today, awaiting a move through either 1.3600 or 1.3900 to signal its next medium-term directional move. The reopening doom and gloom headlines have dimmed as the week has gone on, suggesting that the upside may be the path of least resistance for Her Majesty’s British pound.
The US dollar index was almost unchanged overnight at 92.85, roughly in the middle of a broader 92.50 to 93.20 trading range for the week. Inflows into the US bond and equity markets continue to support the greenback on dips while at the same time, it lacks the conviction/momentum to test 93.20 convincingly. The data calendar and Capitol Hill risk tighten up considerably next week, and the US dollar direction should resolve one way or the other. In the meantime, patience is required.
USD/CNY remains marooned between 6.4500 and 6.4900, with the 100-DMA today at 6.4720, acting as an intra-day pivot of late for day traders. The PBOC seems content with the level of the yuan at these levels, having nipped the appreciation trend in the bud for now. Both the Malaysian ringgit and Indonesian rupiah made sharp gains overnight, which I attribute to yet another spike in oil prices. USD/THB, though, remained locked at its recent highs, trading at 32.93 today. As an unofficial index of the delta variant in Asia, I believe that the overnight rallies by MYR and IDR are temporary and that their downtrend will resume sooner rather than later, along with the THB.