Modest US dollar strength in range-trading Asian session
The dollar index fell again overnight, as recessionary concerns appear to be prompting the start of a long-overdue short-term correction to US dollar strength. Resistance at 105.00 held fast on Friday and overnight, the index continued its modest descent, falling 0.27% to 104.19, where it remains in Asia. A daily close below 104.00 could signal a deeper correction towards more important support at 102.50, relieving the overbought technical picture.
United Kingdom’s structural headwinds leave the longer-term picture still bearish
Having based at 1.0350 on Friday, EUR/USD has ground higher to 1.0445 today. EUR/USD has resistance at 1.0500, with a rally through it extending gains to 1.0650 and possibly even 1.0800, the 37-year breakout line. In a similar vein, GBP/USD has traced out a low at 1.2155 last week. It has risen 0.15% to 1.2340 today. Again, it too has the potential for a material correction higher with a close above 1.2400 opening the door for further gains to potentially 1.2650. However, like Europe, the United Kingdom’s structural headwinds leave the longer-term picture still bearish.
In the bigger picture, USD/JPY remains at the mercy of the US/Japan rate differential
USD/JPY fell modestly overnight before a rise in US yields in Asian trading pushed it higher by 0.20% to 129.35 today. USD/JPY is displaying corrective potential as well which could extend to 127.00 initially, and possibly 125.00, especially if recession fears continue pushing US yields lower. In the bigger picture, USD/JPY remains at the mercy of the US/Japan rate differential.
The rally in global sentiment has allowed AUD/USD and NZD/USD to recapture 0.7000 and 0.6300 today and both could potentially have another 200-300 points of gains ahead if the US dollar correction lower accelerates. In the shorter term, both will continue to be buffeted by swings in investor sentiment, especially around China.
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Asian currencies are slightly stronger today as investor sentiment swings to pricing in peak-Shanghai-lockdowns. That will only last if new cases remain at zero, of course. If USD/CNY remains below 6.8000, Asia FX could potentially stage recoveries versus the US dollar, although most remain near their lows versus the greenback. Oil prices remain at multi-week highs, which will be another headwind to an Asia FX recovery.
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