US dollar buoyed by higher US yields
Short US dollar positioning continues to have its nerves frayed in Asia, after the greenback made an impressive intra-day comeback overnight, lifted by higher US yields. The dollar index has risen 0.15% this morning to 93.76, and now has important resistance at 94.00 in sight. A daily close above 94.00 could be a signal that further dollar short-covering versus major currencies is imminent.
Of the major currencies, the two most vulnerable look to be the British pound and the New Zealand dollar. The GBP/USD pair has failed badly ahead of 1.3200 resistance and has fallen back to 1.3030 overnight. Weak UK data this afternoon could see support at 1.3000 tested and has the potential to extend losses to 1.2800.
The New Zealand dollar has traced out a multi-day top at 0.6700 over the past month, and overnight, it fell through 0.6580 after Covid-19 returned to the country and its biggest city entered a new lockdown. A dovish RBNZ today, which also mentioned the currency, has added to the gloom. NZD/USD has fallen 0.35% to 0.6550 today. Should Covid-19 not be contained in Auckland, the government has signaled further national restrictions are imminent. The NZD/USD has support at 0.6500 initially, with critical support at 0.6370, a triple bottom and also the 200-day moving average (DMA). Covid-19 developments have the potential to set in motion a material fall in the New Zealand dollar.
Elsewhere, the USD/JPY pair has traced out a series of higher daily lows, grinding higher to resistance at 106.70 today. Further gains signal a move to the 100-DMA at 107.25 and then 108.00. EUR/USD failed ahead of 1.1800 overnight and sits at 1.1720 this morning. A failure of support at 1.1700 suggests that losses could extend possibly as far as 1.1500.
Asian currencies have retreated today as well, with most regional currencies and the Chinese yuan lower by 0.15% versus the dollar.
Although the pillars of the great US dollar rotation remain; the debasement of the dollar via endless quantitative easing, and lower for longer negative real yields; the short dollar trade has become crowded. Heavy bond issuance and unproven inflation fears look increasingly likely to provide the catalyst for the culling of the short-dollar herd in the near-term.