The US dollar retreats

US dollar starts 2021 in the red

The US dollar is on the back foot in Asia today, following strong manufacturing PMI’s from across the region, raising economic recovery hopes. The dollar index has fallen 0.27% to 89.69, with support at 89.50 nearby—a daily close below 89.50 openings up further losses to 89.00 initially.

That has seen the Euro, sterling and yen all grind higher versus the greenback today to 1.2250, 1.3695 and 120.95, respectively. Sterling has hit a 19-month high this morning, with 1.3800 its first technical target from these levels.

Despite some doomsday scenarios reported in the media last week, the UK quietly bid farewell to the European Union on January 1st without incident. Admittedly with the EU and the UK on New Year’s breaks, we may have to wait a couple of weeks to see if thousands of trucks back up on both sides of the English Channel, or if supermarkets start running out of fresh produce. I remain of the opinion that the doom-mongering is overdone until presented with evidence to the contrary. That probably explains sterling’s resilience on Monday.

USD/JPY is flirting with monthly support at 103.00 today, with Covid-19 restrictions from the central government, should they occur, potentially sparking more yen repatriation flows. USD/JPY could fall to 101.00 in the coming weeks.

Asian currencies are rallied by around 0.25% versus the greenback today, and the commodity-based Australian and New Zealand dollars are also 0.30% higher. That leaves most of the Asia-Pacific at or very near recent highs against the US dollar.

I would sound a note of caution from here though. Markets will ignore the Georgia elections tomorrow in the US at their peril. A Democrat win is likely to see a sharp correction higher by the US dollar, exacerbated by the world being universally short the greenback. Investors should probably wait for the election dust to settle before committing heavily to new dollar short positions.

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