Dollar falls on Powell’s rate remarks
Jerome Powell’s remarks around rate hikes being driven by data sparked a sentiment rally overnight, as markets priced in peak inflation and interest rates. With equities rallying hard, the haven US dollar resumed its downward correction, being sold heavily versus the G-10 space. That saw the dollar index plummet by 0.70% to 106.46. The dollar index has continued falling in Asia. Taking out the rising wedge support is at 106.45 as it falls 0.22% to 106.24. A daily close under 106.45 today will be a significant technical development, signalling deeper losses towards 1.0500 and 1.0350, potentially extending to the initial 102.50 long-term breakout. Resistance is at 107.45 and 108.00.
A weaker US dollar saw EUR/USD reverse the previous day’s losses, rising by 0.81% to 1.1096 before gaining another 0.14% to 1.0215 in Asia. Despite the overnight gains, EUR/USD remains rangebound, with a weaker dollar offset by geopolitical and recession fears in Europe itself. The multi-day resistance around 1.0275 remains formidable. Only a sustained break above 1.0360 now suggests a longer-term low is in place. EUR/USD has support at 1.0100 and 1.0000.
GBP/USD broke through resistance at 1.2100 overnight, on its way to a 1.04% gain to 1.04% gain to 1.2156. It has risen another 0.14% to 1.2175 in Asia. The close above 1.2100 signals a test of 1.2200 is imminent. The rally could eventually target longer-term resistance at 1.2400. Support is now at 1.2100, and then 1.1960, followed by 1.1900 and 1.1800.
USD/JPY edged 0.25% lower to 136.60 overnight but has tumbled by 0.95% to 135.30 in Asia as local investors rush to price in a peak of the US/Japan rate differential that has been behind the USD/JPY rally. Long USD/JPY is still a crowded trade, and as I have been signalling for some time, the risks of a material move lower have been increasing. The technical picture has support at 135.00 now, and USD/JPY could potentially move lower to the 131.50/132.00 if more US dollar longs capitulate. Initial resistance is now at 136.50 and 137.50.
AUD/USD rose 0.80% to 0.6995 overnight, where it remains in Asia. NZD/USD rose by 0.55% to 0.6265. The technical picture for both remains constructive as both currencies staged upside breakouts higher a fortnight ago. They remain well above their breakout lines at 0.6790 and 0.6145. In the short-term, AUD/USD is running into some resistance here at 0.7000, while NZD/USD faces resistance at 0.6300.
Asian currencies are mostly sharply unchanged today, with the US dollar selloff versus the DM space passing Asia by. The Korean won, the Chinese yuan, and Singapore dollar have booked only modest gains. The performance of Asian currencies today perhaps reflects the lackadaisical rally by Asian equities today, with the region’s markets seemingly focused on a broader range of risks internationally. The impressive rally of oil prices this week may also be weighing on sentiment, and the Asia FX space remains, for the most part, at or near recent lows versus the US dollar, suggesting that weakness will persist.
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With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.
He has previously 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 wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.
