The US dollar rallies on haven flows

US dollar posts broad gains

The US dollar staged an impressive rally overnight, notably versus the major currency grouping, as investors took fright at a number of negative factors sweeping markets. The dollar index rose 0.60% to 93.55, with a test of resistance at 94.00 seemingly on the cards. The dollar rally has left several pro-cyclical darlings looking vulnerable to deeper corrections lower.

EUR/USD has failed multiple times to hold above 1.1900 in the past two weeks and fell 0.55% to 1.1760 overnight. Buffeted by Covid-19 winds, it now threatens to test support at 1.1700, with a failure opening a potential drop to 1.1500. Likewise, sterling fell 0.755 to 1.2815 overnight. It has support at 1.2765 followed by critical support at 1.2720 where its 100 and 200-DMA’s have met. A failure of the latter opens a potentially large correction that could travel as far as 1.2200 as Brexit concerns add an extra layer of risk for Her Majesty’s British pound.

The Australian dollar fell 1.0% overnight, having failed to recapture 0.7400 this month, now faces a test of September support at 0.7200, A failure could extend the sell-off back to 0.7000. Likewise, the New Zealand dollar fell 1.40% overnight to 0.6666, the number of the beast, as bearish a sign as this Kiwi has seen. Having topped out at 0.6800, the risk of a test of 0.6600 support has risen. A failure of 0.6600 risks a deeper fall to 0.6500 and then 0.6400.

USD/CNY climbed 500 points to 6.8040 overnight, although another firm PBOC fix has seen it retreat to 7.7900 this morning. Robust China data will continue to support the yuan, as will a mildly hawkish PBOC. With the PBOC intent on keeping the CNY firm, the fallout amongst regional Asian currencies has been modest today, with the Thai baht and Malaysian ringgit on 0.25% lower. The 6.8000 regions will be a CNY/CNH pivot point, with both currencies likely to range between 6.7500 and 6.8500 this week. That picture may change though if the G-10 sell-off accelerates. However, if the PBOC’s hand stays firm, the negative impact should be less for Asian regional currencies.