US dollar falls on US data
The retreat by the US dollar continued overnight, as US GDP and Initial Jobless Claims reinforced transitory inflation sentiment, flattening the US yield curve. The dollar index fell by 0.45% to 91.88, although delta-variant nerves in Asia has lifted it slightly higher to 91.96 this morning. Rallies should now be limited to 92.20, and the index will be eyeing its critical medium term pivot level at 91.50 next week. That is a clearly denoted support line and also the 50 and 100-day moving averages (DMAs). Failure will signal further directional losses targeting 89.50.
EUR/USD continued to rally overnight, the single currency powering through resistance at 1.1850 on its way to a 0.40% gain to 1.1887. The 1.1850 zones should limit losses now, and EUR/USD should test 1.1900 by the end of the week and target further increases to 1.975, the 100-DMA, early next week. GBP/USD broke through its 100-DMA at 1.3925 as it rose 0.40% to 1.3960 overnight with a close above the 1.4000 level, signalling further gains next week.
USD/JPY continues to wilt, falling to 109.50 overnight as the US yield curve flattens. USD/JPY remains a US/Japan yield differential play, and until US rates start to move higher, USD/JPY will struggle to hold onto gains above 110.00. A loss of 109.00 targets 108.20.
The weakness of the US dollar overnight saw the Chinese yuan fixed substantially stronger today, although that was in line with movements in the basket. USD/CNY was fixed 350 points lower at 6.4602 this morning, leaving USD/CNY near the bottom of its recent 6.4500 to 6.4900 range. Notably, that has not translated into strength across regional Asian currencies, with US dollar strength confined to the major currencies and the yuan. USD/THB, USD/IDR and USD/KRW fell overnight modestly but have swiftly risen to near recent highs this morning, with only the Singapore dollar continuing to hold onto its recent gains.
With Singapore’s vaccination programme racing at breakneck speed, it seems that the delta-discount remains firmly applied to its regional peers. Until Asia as a whole gets on top of Covid-19, Asian regional currencies will remain under pressure. On that note, the Malaysian ringgit heads into the weekend, looking particularly vulnerable. USD/MYR is near its recent highs, trading at 4.2340 this morning. The disastrous Covid-19 situation continues to lurch from bad to worse. The picture for the ringgit has got cloudier still after the Malaysian King rebuked the Prime Minister yesterday, raising the spectre that the government or the PM will fall over the weekend. USD/MYR could strengthen to 4.2800 next week as the country’s political and virus crisis deepens, with no solace being found from higher oil prices.
