From a technical perspective, the US dollar looked vulnerable to start the week, but the 8.5% drop in Chinese shares in Shanghai provided additional fuel. The linkage between the two is that global headwinds may intensify and keep the Fed from raising rates in September. This seems like a premature judgment, but market pricing was never as convinced of a Fed hike than as surveys suggested.
The euro, perhaps encouraged by a stronger than expected IFO (business climate at 108.0 in July up from 107.5 in June and defying expectations for a small decline), and continued improvement eurozone lending pushed to almost $1.1115 before running out of steam. The euro has not closed above its 20-day moving average (~$1.1007) in a little over a month. The downtrend off the June 18-22 July 10 high intersects today near $1.1070.
Falling stocks and softer US bond yields saw the dollar extend last week's drift lower against the yen. The dollar slipped to almost JPY123.25, matching the low from July 15. The 20-day average is seen just below JPY123.20, and a break would signal a move toward JPY122.80. Resistance is seen near JPY123.60. The Nikkei itself lost nearly 1.0%. It flirted with the 20-day average (~20340) but managed to close barely above it. Support is seen in the 20000-20120 area.
The gains in the dollar-bloc currencies seem like an anomaly. It is the first place that North American participants may look to fade the US dollar's weakness. Usually, negative news out of China weighs on those currencies. The New Zealand and Canadian dollars are gaining around 0.4% on the day against the greenback.
There does not appear to be a trigger outside of simply market positioning and the move to the sidelines (short-covering). The US dollar fell to CAD1.2980 in the European morning, but the pullback was greeted with fresh buying, and the greenback easily resurfaced above CAD1.30. Resistance is seen in the CAD1.3020-40 band. While the Australian dollar is practically flat, the New Zealand dollar recouped the pre-weekend losses in full. It ran out of steam near $0.6620. Support is seen in the $0.6560-80 area.
