The currency markets have been quiet of late, and any hopes that the end of the second quarter would cause a stir in the currency markets have now been dashed. Quarter-end flows had little to no effect on currency markets, with the G-20 space content to continue in wait-and-see mode. The dollar index was barely changed, lower by just 0.18% to 97.36.
One senses that the dollar's corrective recovery may still have more to run, and that currency markets are more fearful of the COVID-19 pandemic’s fall-out in America in the near term. The second quarter of 2020 has been marked by a global rotation out of the USD.
USD/JPY has quietly risen by 200 points over the past week, to just shy of 108.00 overnight. USD/JPY faces strong resistance now though, with the 100 and 200-day moving averages (DMA’s) awaiting at 107.90 and 108.40 respectively.
Unusually, the Japanese Yen is showing no signs of the haven flows supporting the greenback. That may well be because of the procession of negative Japanese data recently. A rise through 108.40, though, may surprise markets and see USD/JPY continue rallying to the 110.00 level.
EUR/USD and GBP/USD continue to sit in the middle of their monthly ranges. Although some downside may remain, both Britain and the Eurozone could outperform the US in Q3, at least initially. This is mostly due to the inability of the US to get on top of its COVID-19 situation. Some patience will be required, but both EUR and GBP should resolve higher eventually, supported by their own recoveries and as well as a recovery in Asia.
The Australian dollar, being a proxy for China and world growth and having emerged early from COVID-19 lockdown, led the global rotation out of US dollars in Q2. For the past month, much like the S&P 500, the Aussie has spent that time consolidating in a narrow 0.6800 to 0.7000 range.
The pennant-like formation on the charts suggests that a breakout is coming, and it will most likely be higher. As long as China’s recovery remains on track, both the Australian and New Zealand dollars seem destined for higher levels in the medium-term, even if corrective pressures persist in the near-term.