Overview: With Japanese markets closed for a national holiday, the dollar was offered in early turnover today, and its recent losses were initially extended against several currency pairs. However, it recovered and early losses were pared or reversed. Among the G10 currencies, the dollar is higher against the Swiss franc and Japanese yen. The German election results were very much in line with the polls and a CDU/CSU-SPD coalition seems likely, and maybe the Greens too. Emerging market currencies are mostly firmer against the US dollar.
After the pre-weekend tumble in the US equities, Asia Pacific markets mostly fell today. Of the large bourses, Australia was an exception with its small gain. Europe's Stoxx 600 is up about 0.25%. US index futures are pointing to a higher open. Benchmark 10-year yields are little changed, putting the US 10-year Treasury yield near 4.43%. Gold is firm near $2940, a little below last week's record. April WTI opened below $70 and has recovered to about $70.65 in European turnover.
USD: The Dollar Index made a new low since early December in Asia Pacific trading today near 106.10 before recovering fully by late European morning turnover. A close above last Friday's high 106.75 would lift the technical tone. A move above last week's high of almost 107.40 and a move above would suggest a low may be in place. The economic diary features a couple of Fed surveys and house prices today and tomorrow. Around nine Fed officials are scheduled to speak this week, beginning with Logan, Barr and Barkin tomorrow. The views are fairly well known at this juncture.
EURO: In the rally in Asia Pacific today, the euro made a marginal new high for the month but was turned back before taking out the January high near $1.0535. It has turned toward session low, a little above $1.0460. A break of $1.0450 set up a test on last week's low near $1.04. That may be the neckline of a double top pattern, whose measuring objective would be around $1.03. Initially, a break of $1.04 may find support near $1.0365. Earlier the January CPI was confirmed at 2.5% (and 2.7% core). The German election results were in line with the polls. The CDU won a plurality of votes but given the fragmented nature of German politics, a coalition government will be necessary and the two parties in the current government, SPD and Greens, are the ironically the most likely to help form it. It is easy to be cynical and expect a continuation of the status quo, more or less. Instead, it is possible that the election makes possible new initiatives to boost integration and strengthen local defense capabilities. The fact that the German IFO survey was flat (85.2) as a result of the decline in the current assessment and a rise in expectations.
CNY: For more than three months, the dollar has been trading in a roughly CNH7.21-CNH7.3750 trading range on the broad and mostly CNH7.25-CNY7.30 on the narrow. It fell to about CNH7.2260 today before rebounding back above CNH7.25. Officials seems content. Some pressure on the yuan appears to have moderated by the narrowing of the 10-year yield discount to the US and the better performing equity market, especially for the mainland companies listed in HK. The PBOC continues to set the dollar's reference rate in a narrow range that has moved more than 0.01%-0.02%, with two exceptions this year and today is one of them: the fix was set at CNY7.1717, 0.03% above Friday's.
JPY: The dollar had been trying to re-established a foothold above JPY150 before the weekend, and before the unexpected contraction in the US services PMI and deterioration in US consumer confidence saw the US 10-year yield extend its decline for the third consecutive session to 4.40%, almost 17 basis points lower than the mid-week high. While Tokyo markets were closed today for the Emperor's Birthday, the dollar was slod to a marginal new low, slightly below JPY148.90. Taking out JPY149.20 means that the dollar has retraced half of its mid-Sept to Jan 10 rally. The December low was near JPY148.65 and the next retracement (61.8%) is around JPY147. It has recovered to new session highs in Europe near JPY149.65. A close above JPY150 may help stabilize the technical tone.
GBP: Sterling stalled ahead of the weekend after reaching a new two-month high near $1.2680. The profit-taking by intraday players saw it pullback by a little more than half a cent. It made a marginal new high today slightly above $1.2690. It was repulsed in front of $1.2700 and fell to session lows near $1.2625 before finding support. Last week's low was closer to $1.2565, and the band of support may extend toward $1.2550.
CAD: Last week, the US dollar held above the two-month low set February 14 near CAD1.4150. The upside was limited to almost CAD1.4250, holding in front CAD1.4260, which was previously support and now resistance. The greenback finished last week near new session highs around CAD1.4230 and has held below there today. The Canadian dollar seems particularly vulnerable to the tariffs that the US threatens starting early next month. The Canadian dollar is firmer than when it settled last year (~CAD1.4390), while the risks emanating from the US would seem to have risen sharply.
AUD: Before the weekend, the Australian dollar reached a new two-month high and come within five-hundredths of a cent of meeting the (38.2%) retracement of losses since last September's high ($0.6940). The Aussie was turned back after reaching almost $0.6410. It recorded session lows in the North American session near $0.6355. It has held below $0.6400 today and found support near $06360. It can fall back to $0.6330 without inflicting much technical damage.
MXN: The dollar recorded a new low for the month near MXN20.20 in the middle of last week. It recovered but only to stall near the 20-day moving average a little below MXN20.48. Today's high has been slightly above MXN20.43. The peso, like the Canadian dollar, seems vulnerable. The 25% tariff (10% for Canadian energy) ostensibly for undocumented migration and fentanyl that were postponed are back in play as soon as March 4. Mexico reports inflation for the first half of February today. The headline rate is seen ticking up to 3.7% from about 3.5% and the core rate steady near 3.6%.
Reviewed by Marc Chandler
on
February 24, 2025
Rating:
