Currency markets march to the recovery beat
Currency markets have ignored the noise in equities overnight, as is their wont of late, and have shifted up a gear in the vaccine-led recovery trade. That meant selling the US dollar, which had a torrid session, the dollar index falling 0.30% to 90.65, just above critical support at 90.50. The greenback has continued edging lower today in Asia, the dollar index easing to 90.65.
Most of the outperform was due to the euro, which rose 0.45% post-ECB, to 1.2140. The single currency is now threatening resistance at 1.2180, which will open up further gains to 1.2250 initially with a medium-term target of 1.2550. The Swiss franc and Japanese yen also enjoyed positive sessions, with USD/JPY falling to 104.00. USD/JPY has strong support at 103.70, and failure opens up deeper losses t0 103.20.
The cyclical Commonwealth currencies are where the recovery trade has really manifested itself. USD/CAD fell 0.60% to 1.2740, NZD/USD climbed 1.10% to resistance at 0.7100, and the AUD/USD leapt 1.25% to 0.7535. Notably, AUD/USD has risen another 0.30% to 0.7560, targetting further gains to 0.7800 initially. The NZD and CAD both remain at their overnight highs and are also poised for more gains. As a proxy to China and world growth, all three commonwealths are now strongly signalling further US dollar weakness ahead. AUD/USD, in particular, has a clear road ahead to the 0.7800 regions.
In Asia, regional currencies have moved modestly higher this morning. Although less frantic than the Commonwealth currencies, they remain at or very near multi-month highs versus the greenback. USD/MYR has fallen to 4.0540 today, just above support at 4.0500. A weekly close below 4.0500 signals a move below 4.0000, targetting ringitt gains to 3.8500 in Q1 as the cyclical recovery trade lifts previous underperformers heavy in non-tech industries.
Brexit has ensured that sterling has moved to its own beat, hemmed in a volatile 1.3200 to 1.3500 range by Brexit headlines. The market remains heavily long sterling, and if Sunday’s deadline passes with no deal, sterling could well fall below 1.3000 very quickly on Monday.
As stated previously, currency markets have been consolidating for some time in preparation for further gains across the board against the US dollar. The action in the G-10 space overnight is signalling that that time is drawing near.