​Title: US dollar consolidates

Nov 24, 2021 06:08AM ET

By: AnalysisWatch

The US dollar took a breather overnight, although yields on long-dated US bonds continued to rise. With the US holiday looming and data due tonight, currency markets in New York seemed content to consolidate the dollar's recent gains. The dollar index was almost unchanged at 96.49 before rising to 96.56 in Asia today. The index's first target is the June 2020 highs at 97.80 and it finds support at 96.00 and 95.50. The index's RSI (Relative Strength Index) indicator remains in overbought territory, suggesting that the US dollar is vulnerable to a short-term downward correction before resuming its uptrend.

The EUR/USD pair traded in a narrow range overnight but is still stuck in the mud at 1.1235 today. The US dollar's strength has been reinforced by the delta situation in Europe, and the single currency remains on track to test 1.1160 this week. This in turn could lead to a retest of 1.1000. Only a downside reversal in US yields will mitigate the negative outlook, although the COVID-19 situation will limit any gains. GBP/USD tested support at 1.3350 overnight but has since recovered to 1.3375 in Asia. 1.3400 and 1.3500 are resistant, while sterling remains vulnerable to a test of 1.3300 due to its geographic link to the euro.

The RBNZ's expected 0.25% rate hike today sent the NZD/USD sharply lower by 0.65% to 0.6905, with near support at 0.6900 threatening to fail. This would mean further losses, initially up to 0.6800. With the RBNZ not meeting until February, the Kiwi now looks much more vulnerable than it has recently. With market hopes of a 0.50% rate hike dashed, support from the yield differential has eroded. The AUD/USD pair was dragged down by the Kiwi and fell 0.35% today to support at 0.7200. Failure signals further losses to 0.7100. With risk sentiment now negatively weighted globally, further buying of US dollar havens will further cloud the outlook for AUD and NZD.