Currency markets looking for direction
The currency space remained on the sidelines overnight, content to wait and watch for developments elsewhere for its next directional cues. The dollar index rose just 0.16% to 98.77. It has reversed in Asia, falling by 0.34% to 98.44 as Japanese officials talked the yen higher. 97.70 and 99.50 remain the levels to watch for directional clues.
EUR/USD continues to trade each side of 1.1000, climbing 30 points to 1.0330 in Asia, catching the spillover of yen strength. EUR/USD remains midrange between critical long-term support at 1.0800, and resistance between 1.1150 and 1.1200. Short of a peace agreement arriving between Ukraine and Russia, the single currency will struggle to maintain gains above 1.1100.
GBP/USD has edged higher to 1.3225 in Asia but is basically almost unchanged from the previous day. GBP/USD has nearby resistance at 1.3300, followed by 1.3400, with support at 1.3125 and major support at 1.3000. Like EUR/USD, I have doubts about sterling maintaining gains over 1.3300.
USD/JPY rose sharply through 122.00 to 122.33 overnight, as the US/Japan rate differential widened once again. That prompted “watching FX markets closely” comments from the Japanese Ministry of Finance and BOJ today. That has sent USD/JPY sharply lower by 0.75% to 121.40. The effects are likely to be only temporary though and USD/JPY looks attractive at 121.00 for another move back through 122.00. Only a move lower by US yields this evening will deepen USD/JPY’s downside correction.
The Australian and New Zealand dollars rose modestly overnight to 0.7535 and 0.6980 respectively. They are holding those gains today as the US dollar weakens elsewhere, and seemingly as a preferred commodity and weekend risk hedge. Both are poised for further gains next week if the weekend headline ticker remains quiet but have some quite substantial downside risks if sentiment suddenly turns sour. The story is much the same in the Asian currency space, Asian currencies are still trending weaker but appear to be banking some short-term gains as they await developments elsewhere.