Dollar Crushes Major Currencies ahead of Inflation Data
The United States (U.S) dollar improved against its major trading partners early Tuesday, apart from the yen, ahead of the release of the weekly Redbook retail sales and the first reading of July consumer confidence from Investors’ Business Daily.
Earlier Tuesday, the National Federation of Independent Business’ report on small business sentiment for June showed that inflation remains the top concern, pulling down the economic outlook to a record low level.
Analysts are also looking ahead to Wednesday’s consumer inflation report for June, a key benchmark for the Federal Reserve, and Friday’s retail sales report, also for June.
A summary of foreign exchange activity heading into Tuesday shows that USDEUR fell to 1.0013 from 1.0041 at the Monday US close and 1.0114 at the same point Monday, approaching parity.
The EU ZEW economic survey plunged more than expected in July, with an accompanying drop in the Germany-specific version, data released earlier Tuesday showed. The European Central Bank is expected to raise rates at its July 21 meeting.
GBPUSD fell to 1.1844 from 1.1891 at the Monday US close and 1.196 at the same time Monday morning. The UK retail sales monitor fell further in June due to inflation, data released overnight showed.
The Bank of England next meets on Aug. 4 when it is expected to maintain its tightening cycle with the possibility of a larger 50-basis-point increase after a series of smaller 25-bp hikes.
USDJPY fell to 136.7636 from 137.4209 at Monday’s US close and 137.0688 at the same point Monday morning. Japanese producer prices rose faster than expected in June, data released overnight showed. The Bank of Japan is expected to maintain its accommodative monetary policy at its July 20-21 meeting and for an extended period after.
USDCAD rose to 1.3045 from 1.3005 at the Monday US close and 1.2997 at the same point Monday morning. There are no Canadian data releases scheduled for Tuesday. Markets expect further monetary policy tightening at the Bank of Canada’s meeting on Wednesday after June’s 50-basis-point increase.
US Dollar crushes Major Currencies
The US Dollar caught another flight-to-safety boost overnight, running rampant over developed market (DM )currencies with the Euro, Sterling, Yen, and Australian Dollar coming in for particular attention, said Jeffrey Halley, OANDA analyst in a note on Tuesday.
In Asia today, EUR/USD continues to flirt with parity, while the US Dollar has strengthened broadly across the Asia FX space. The dollar index soared 1.23% higher to 108.21 overnight, gaining another 0.16% to 108.38 in Asia as Euro and Sterling losses continued.
Overall, the technical picture remains constructive for the dollar index, although the daily relative strength index (RSI) is now in overbought territory, suggesting a temporary downward correction is possible.
Having broken out of a 5-year triangle at 102.50 in April, its longer-term target remains in the 1.1700 area. More immediate resistance is at 108.45 and 110.00. Support is at the 1.0585 breakout point, and then 1.0500, followed by 1.0350 and 102.50.
EUR/USD tumbled by 1.43% to 1.0040 overnight, edging 0.17% lower to 1.022 today, having traded as low as 1.0006 earlier in the session. I expect there to be plenty of bids into parity initially, likely option and exporter-related. READ: Dollar Slides Ahead of U.S Data Release
A break of 1.0000 is likely to trigger a sharp move lower as stop-losses and algos kick in. Since breaking a multi-year support line at 1.0850 in April, Euro has looked consistently weak, the recovery rally failing ahead of 1.0850 in a technical analysis nirvana.
An oversold RSI allows for short-term recovery, with resistance at 1.0200 and 1.0270. Support is at 1.0000, and failure targets the 0.9900/25 area. GBP/USD fell by 1.19%% to 1.1890 overnight, dragged lower by the Euro and a rampant US Dollar.
With a new Prime Minister not due to be announced until early September, this uncertainty will continue to weigh on the sterling. In Asia GBP/USD has edged 0.20% lower to 1.1867. Immediate support is nearby at 1.1860 and 1.1800, with 1.1400 the medium-term target. Resistance is well defined at 1.2060 and 1.2200.
USD/JPY rallied by 0.98% to 137.40 overnight despite US yields easing. In Asia, it is steady at 137.30 as Finance Minister Suzuki’s comments add some two-way risk into being long USD/JPY at these levels, at least temporarily. USD/JPY has resistance at 138.00 and 140.00, with support at 136.00, 134.25 and 132.00.
Only a sharp fall in US yields seems likely to turn USD/JPY lower. AUD/USD slumped by 1.70% overnight to 0.6735 on a combination of Haven-based US Dollar buying, a reversal in global investor sentiment, and China lockdown concerns. In Asia, it has eased 0.17% lower to 0.6725.
A correction above resistance at 0.6900 looks unlikely for now, with risks skewed towards the downside and a test of 0.6600. NZD/USD also plummeted overnight and is facing a test of 0.6100 today. # Dollar Crushes Major Currencies ahead of Inflation Data
