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Oct 08 - 04:55 PM

EUR/USD - COMMENT-US Recap: ECB Tames EUR/USD, Relief Talk Keeps Markets Guessing

By Randolph Donney  —  Oct 08 - 03:10 PM

The dollar held firm on Thursday after dovish accounts of the ECB's latest meeting and troubling European pandemic reports tamed the euro while continued U.S. fiscal relief uncertainty provided a slight safe-haven boost.

The accounts indicated that ECB policy makers could be more worried about the euro zone economy than previously thought, leaving the "free hand" that officials desired open to dovish interpretations nL8N2GZ3Q4.

EUR/USD consolidated below Tuesday's 1.18075 October rebound high on EBS and the 30- and 55-day moving averages at 1.1788/96.

The cacophony of comments from President Donald Trump, House Speaker Nancy Pelosi and others about a possible pandemic relief package nL1N2GZ182 has slowed but not reversed the S&P 500 rise and fall in the safe-haven dollar and yen.

This risk-on bias is backstopped by an accommodative Fed pleading for fiscal support until the pandemic is subdued and the economic recovery becomes self-sustaining.

Risk acceptance has derived further support from polling and betting data indicating rising chances of the Nov.
3 election delivering the White House and, possibly, Senate to the Democratic Party, which could then approve the aggressive fiscal spending their members have advocated.

Weekly jobless claims showed little progress in reducing layoffs, though continuing claims dropped more than expected nL1N2GY1AZ.

Sterling followed EUR/USD's lead, with the 1.2970 high finding offers tied to the falling 30-day moving average at 1.2975 after Monday and Tuesday's recovery highs faltered by the 55-DMA.

Bank of England Governor Andrew Bailey noted downside risks to the economy and the bank's willingness use policy "actively and aggressively" nL8N2GZ1QL.

An EU-UK trade deal is still being priced in as more likely than a highly disruptive no-deal exit at year-end.
Gains in U.S. and UK stocks, which GBP/USD is positively correlated to, limited the pound's pullback from earlier gains.

USD/JPY repeated Monday's 106.11 high right at the downtrend line across July and August peaks and was limited to a tight 105.925-6.11 range inside the 105.85-6.18 daily cloud.

A pullback in 10-year Treasury yields persisted after Wednesday's high ran into resistance by 79bp and as the Fed is seen more likely to extend QE as near-term fiscal support remains uncertain.

The lower Treasury-JGB yield spreads offset the modest risk-on rise in stocks, leaving USD/JPY on hold.

High beta currencies benefited from the risk-on and dollar-off narrative, but moves were muted.

Crude rose on Norway's oil workers strike and Gulf of Mexico shutdowns due to Hurricane Delta.

The thinning economic calendar in coming sessions could leave focus on U.S. political and fiscal news.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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