Asian currencies falter

US dollar in choppy waters

The dollar index had another choppy range overnight but ultimately closed nearly unchanged once again as the G-10 currency space was content to watch from the sidelines. Recessions fears being offset by lower US yields. The dollar index closed slightly higher at 104.00. Although the index has support at 103.50, it is struggling to make a material close above 104.00, although it has moved higher to 104.07 in Asia. A daily close above 104.00 will signal rapid gains to 105.00 and in the bigger picture, the technical picture still says a multi-month rally to above 120.00 is possible. Support lies at 103.50 and 102.50.

Most of the activity today in Asia has been in the regional currency space and USD/Asia is sharply higher. With cryptos and equities falling heavily Asian currencies seems to be suffering as part of a generalised risk-aversion wave. USD/KRW has jumped 0.80% to 1289.50, with USD/TWD and USD/PHP rising by 0.55%, and USD/INR, USD/MYR, USD/SGD, and USD/IDR between 0.25% and 0.35% higher.

Asian FX weakness is being exacerbated by the fall of both the onshore and offshore Chinese yuan today. USD/CNH has risen 0.555 to 6.8000, and USD/CNY by 0.65% to 6.7650. Their next target is the 6.8500 region. Until the PBOC signals that yuan depreciation has gone far enough, Asian currencies will remain under pressure, and I fully expect to see a few regional central banks in the market selling US dollars today.

EUR/USD is treading water at 1.0510 this morning having failed ahead of 1.0600 overnight. Any negative developments around Russian natural gas exports today are likely to spur another wave of selling, testing support at 1.0450. Notably, despite ECB officials overnight signalling rate hikes soon, EUR/USD finished lower than its open overnight. GBP/USD has fallen 0.30% to 1.2210 this morning and faces plenty of downside risk on Northern Ireland developments, emergency budgets, or poor data this afternoon. Rallies should be limited to 1.2400 with 1.2000 a real possibility in the next 36 hours.

USD/JPY has finally eased slightly to 129.70 as long-dated US yields fell again overnight. Short-dated US yields are rock solid though, limiting USD/JPY downside. ​ Overall, the US/Japan rate differential and technical picture suggest further USD/JPY appreciation is a matter of when, and not if.

AUD/USD and NZD/USD both gave up intraday gains overnight a sentiment turned sour in New York. The general risk aversion selloff sweeping Asia today has punished both currencies. AUD/USD has fallen through support at 0.7000 on its way to 0.6880, and NZD/USD dropped through 0.6400 on its way to 0.6240 in Asia. The 1.0% losses have left both oversold on short-term technical measures, but unless risk sentiment swings abruptly higher for some reason, both still look like sells on rallies, caught in a US rate hike, China slowdown, pincer move.

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