US DOLLAR DIPS OVERNIGHT BUT RECOVERS IN ASIA
The US 3-year bill auction achieved a desirable bid-to-cover ratio overnight, which was enough to turn sentiment away from the US dollar short squeeze temporarily. Equity markets are signaling today that sentiment could be about to pivot as quickly as it started.
The dollar index fell 0.38% to 91.95 overnight, but in Asia it has recouped some of those losses already, rising 0.20% to 92.15. That has seen EUR/USD fall back below 1.1900 to 1.1880, with USD/JPY climbing 0.30% to 108.80, and GBP/USD falling 0.15% to 1.3865. EUR/USD’s critical support lies around 1.1820, its 200-day moving average. Failure of 1.1800 now makes further losses to 1.1600 likely.
AUD/USD and NZD/USD have given back over half of their overnight gains already. AUD/USD falling 0.50% to 0.7680, and NZD/USD falling 0.40% to 0.7145. Critical supports remain at 0.7600 and 0.7100, respectively. Failure telegraphs 200+ point losses for both.
USD/CNY retreated from resistance at 6.5500 overnight, settling at 6.5130 this morning. With official interest intervening in the stock markets yesterday, it seems unlikely Chinese authorities will tolerate a rapid fall in the yuan either. USD/CNY should hold between 6.5000 and 6.5500 over the next 24 hours, giving valuable breathing space to under pressure regional Asian currencies.
The Indonesian rupiah continues to be a concern, with USD/IDR rising to 14,450 today. Further rises by USD/IDR are likely to trigger heavy intervention by Bank Indonesia, with 15,000 likely to be its line in the sand. If USD/IDR rises through 15,000.00, that is likely to signal further weakness elsewhere in Asia.
Over the past year, we have seen a buy-everything spree in everything except the US dollar, so the balance of probabilities suggests that the US dollar has room to rebound and the dollar short squeeze continuing.
Overall, the price action overnight appeared to be corrective, with the US dollar sell-off quickly running out of momentum in Asia. A weak US bond auction will almost certainly trigger more US dollar strength