US dollar eases
In keeping with the price action in other asset classes, the US dollar staged a sharp retreat overnight on Ukrainian and energy hopes. The dollar index tumbled by 1.10% to 98.00, before creeping up with oil prices this morning to 98.13. The tumble overnight has resolved the greenback’s overbought technical situation and if the Ukraine hopes turn out to be a false dawn as expected, the US dollar should recover much of its losses. Only a fall through 97.50 suggests the correction will continue.
Improved risk sentiment lifted EUR/USD sharply higher, leaping 1.67% to 1.1077 before easing to 1.1056 in Asia. The multi-year support line at 1.0800 held nicely this week, and it could be that we have seen the worst of the Ukrainian-related selling. Multi-month resistance lies at 1.1400, and a long-term low will only be confirmed if it breaks. Interim resistance lies at 1.1200. Notably, GBP/USD rallied only 0.65% to 1.3180 overnight, capped by EUR/GBP buying. Key support remains at 1.3075, with resistance at 1.3300. USD/JPY has firmed to 116.10 as US yields rose once again overnight. A break of 116.50 will signal a fresh rally is underway.
The AUD and NZD rode the wave higher in sentiment overnight, but gains were tempered by the fall in commodity prices. Both currencies will continue to be buffeted by sentiment on one side and moves by commodity prices on the other. That suggests more choppy, but sideways, price action ahead. Having booked strong gains over the past weeks as commodities rallied, the antipodeans remain more vulnerable to risk-aversion flows now.
Asian currencies rallied strongly overnight, led by the Korean won and Indian rupee, which are more sensitive to risk sentiment flows than most of their peers. The collapse of oil prices was the main driver, but with oil prices creeping higher again in Asia, some of those gains are starting to be reversed. The overnight price action is likely to be the eye of the storm, and not a structural change for Asian currencies, which still face a massive inflationary shock from the energy and commodity space.
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