The dollar fell on Tuesday as a strong U.S. ISM manufacturing report nN9N2H700B fueled investor appetite to look for returns outside the U.S. currency, sending EUR/USD near the top of its recent range and helping the risk-sensitive aussie burst higher.
Risk-taking funded with cheap dollars remained the market's overriding theme, with real Treasury-Bund yield spreads remaining negative and expectations of a long spate of easy Fed policy the linchpin of this trade nL1N2JG16C.
The worsening pandemic and slow pace of inoculations nL1N2JF2AK have failed to turn back the risk rally, while uncertainty ahead of Georgia runoff elections that will decide who leads the U.S. Senate only seemed to hurt the dollar nL1N2JF2GA.
Further USD/CNH weakening suggested China was more keen to attract investment rather than worried about the rising yuan's impact on exports.
EUR/USD consolidated within its broader uptrend but appeared headed for long-term targets at 1.2517/556 nL1N2JG16U.
Surprisingly strong German retail sales and jobs data nL8N2JG1PK also reduced pandemic concerns somewhat.
Sterling shook off its COVID lockdown nL1N2JF09J setback nL1N2JG16A, remaining roughly linked to the S&P 500, which outperformed the FTSE.
Fallout from Brexit is so far being more than offset by the lifting of no-deal anxiety.
Buying dips remains favored while above the rising 21-day moving average, last at 1.3475.
USD/JPY plumbed fresh trend lows and a close below 103 would likely signal enough bearish momentum to retest the 101.18 pandemic nadir from March nL1N2JG1A3.
political and policy uncertainty, along with negative real Treasury-JGB yield spreads and far less headroom in Treasuries as a hedge against market volatility, is favoring the yen as a haven, while the dollar is sold to fund riskier asset purchases abroad.
There's growing risk of a Q1 Japanese GDP contraction due to an expected state of emergency in the Tokyo area to contain the pandemic nL4N2JG1SI.
Markets may worry about the potential for verbal or semi-official action to limit USD/JPY losses if key support in the 99-100 range comes into play.
Aussie took advantage of the dollar's slide and big gains in commodity prices, posting fresh trend highs.
The next target is 0.7907, the 161.8% Fibo off November's correction lows.
The biggest risk to that rally is the potential for U.S. political events this week to trip up stocks and risk trades more broadly, causing overbought AUD/USD daily RSIs to trigger another mean reversion lower.
Global services PMIs are due out Wednesday, along with the ADP jobs report and FOMC minutes, but early results from Georgia Senate runoffs are likely to be a top focus.
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