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US dollar trading in a narrow range
Currency markets traded sideways overnight, with the US dollar holding tight ranges against both developed and emerging market currencies. The decline in 10-year US yields only affected the USD / JPY, which has long been a pure interest rate differential game. Unsurprisingly, the USD / JPY fell 0.37% to 109.35 overnight and fell to 109.20 this morning. It is now nearing support at 109.10, with support from the region since early May. Another drop in US yields tonight should see USDJPY break 109.00 on its way to 108.50 and possibly 107.00.
Otherwise, the dollar index was almost unchanged at 92.06. The dollar index remains midway between its breakout to the downside at 92.60 and the structural support at 91.50, which is where its 100-day moving average is. A break of either 91.50 or 92.60 signals the next move in the direction of the dollar.
EUR / USD and GBP / USD remained stable at 1.1880 and 1.3895, as did the other majors. USD / CNY remains anchored at 6.4650 with the Indian rupee, Indonesian rupiah, Malaysian ringgit and Thai baht enjoying a night of relative calm. The major currencies that are likely to exhibit volatility in the next 24 hours are the Australian and New Zealand dollars. The RBA policy meeting was somewhat restrictive as the central bank revised its economic forecasts upwards. RBA Governor Philip Lowe was positive about Covid despite the current lockdowns, saying, “Experience so far has been that the economy is recovering quickly once the virus outbreaks are contained”.
New Zealand released key employment data on Wednesday and robust numbers could potentially stimulate a 100-point rally to 0.7100 for the Kiwi. The RBNZ is widely expected to hike rates at its August meeting, and strong digit numbers will further solidify any hike.
Right now, forex markets are expecting the whole world to have entered an extended wait mode ahead of Friday’s U.S. non-farm payroll data. Only a surge in Covid-19 cases in China this week should offset this lethargy, which should favor the US dollar.
This article is for general informational purposes only. It is not an investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily those of OANDA Corporation or any of its affiliates, subsidiaries, officers, or directors. Leveraged trading carries a high level of risk and is not suitable for everyone. You could lose all of your deposited money.
With more than 30 years of experience in forex trading – from spot / margin trading and NDFs to FX options and futures – Jeffrey Halley is OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis for a variety of asset classes is responsible. Previously, he worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a variety of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia, as well as leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and has an MBA from Cass Business School.
