Lack of movement could signal US rally

Could a breakout for the US dollar be just around the corner? There are signs that the greenback could flex some muscle and gain ground against the majors. Currency markets continue to lose momentum, with the rotation out of US dollars slowing to a crawl overnight, after a less than stellar performance over the past week. The longer that currency markets remain locked in a range, the higher the odds that a US dollar rally will occur. With stock markets posting some dangerous technical indicators overnight, a fall on Wall Street could be the prelude for a corrective move higher by the US dollar.

The dollar index fell 0.11% overnight to 96.54 and is almost unchanged in Asia this morning. Taking a look at the majors, movement has been limited in Tuesday trade. EUR/USD is trading unchanged at 1.1340, AUD/USD at 0.6940 and USD/JPY at 107.20. Resistance at 1.1400 on EUR/USD, and 0.7000 on AUD/USD, are looking increasingly distant at this stage. A failure to capture these levels this week will be another confirmation of stalling momentum. USD/JPY, for its part, looks well contained within its 106.00/108.00 monthly range.

The SGD, THB and MYR have all eased by 0.20% versus the US dollar today, reflecting nerves over the South China Sea, but most notably, the threat of renewed economic lockdowns in America. The Bank of Thailand stated this morning that its economic recovery would be slower and take longer than initially anticipated. Regional currencies will be fearful of China’s response to America’s South China Sea position and will likely trade to the soft side as a result.

The pattern of more robust CNY fixings versus the US dollar seems to have run their course for now, with the majors stalling on international markets, and hot money equity flows in mainland markets fading. Both the CNY and CNH look set for a period of range trading between 7.0000 and 7.0400 versus the dollar.