The dollar fell after disappointing ADP nAQN02XH8H jobs data tempered expectations ahead of Friday's non-farm payrolls report, but it avoided hitting a new post-coronavirus low with help from strong ISM services nN9N26W01B and solid earnings reports.
Hopes for a government stimulus deal also tempered dollar losses but was offset by a weak employment gauge that marred the otherwise upbeat ISM non-manufacturing report.
EUR/USD reached a high of 1.1905 on EBS, just shy of last Friday’s 1.1908 two-year peak.
The dollar index also found support just above July’s 92.54 trough as traders weighed the 16-month high in service-sector PMI against evidence the jobs recovery was slowing, awaiting clarification in Thursday’s jobless claims and Friday’s employment report.
The dollar has been losing ground since March when the Fed cut rates toward zero, ramped up QE and expanded lending in every way imaginable, including international FX swap lines.
Rebounding yields today received a boost from an unexpectedly large Treasury refunding announcement, global risk-on flows and reaction to the headline ISM beat, though a seven-year low in TIPS yields dimmed a bullish dollar response nL1N2F716P.
And the rally in S&Ps slowed in U.S. trading, sapping dollar-selling impetus.
EUR/USD traders have the nice round 1.20 target on the agenda if the 1.1908 highs are cleared before or after the jobs reports on Thursday and Friday.
Failure to take out July’s high or a clear rejection by the 1.20 objective nL1N2F70TZ could usher in another round of long profit-taking given record net spec IMM longs, still stretched oscillators and some concern the allure of European assets over U.S. assets may be waning nL8N2F55RP.
Sterling, too, was within breathing distance of its pandemic rebound high nL1N2F71K4, as well as the March pre-coronavirus swing high at 1.3200 that appears pivotal.
Thursday's BoE meeting is the next local event risk, though little change is expected and cable looks far more linked to the fortunes of the S&P 500 than anything in the UK.
USD/JPY ebbed with the dollar nL1N2F71P3, but its pullback was limited by the 105.33 lows holding the 50% Fibo of the 104.19-6.47 rebound since July 31.
With the late-July breakdown below mid-July range lows basically erased by the Friday-Monday short squeeze, bears are more reluctant to pile into new shorts, particularly before non-farm payrolls and the conclusion of U.S. coronavirus relief bill negotiations.
High-beta currencies, except the beleaguered Turkish lira, rallied against the dollar, helped by rising oil and metals.
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