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Sep 23 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Rebounds With Risk, Haven Yen Hit On All Sides

By Randolph Donney  —  Sep 23 - 02:55 PM

The dollar fell against most majors except the yen on Thursday, as unwinding safe-haven trades cut short the rally in the U.S. currency triggered during the previous session by the Fed's determination to press ahead with stimulus reduction.

The absence of an Evergrande default announcement nL1N2QP048 helped reinforce the rebound in global stocks since Monday's dive, encouraging the move out of safe havens such as the dollar and yen.

EUR/USD overcame weaker-than-forecast September euro zone PMIs nL1N2QP0F5.
A Reuters exclusive on the ECB bracing for sticky inflation and end of emergency stimulus nL8N2QP1G3 helped Bund yields keep pace with Treasuries, particularly after Norges Bank Thursday broke the ice by being the first major central bank to raise rates since the pandemic began nL8N2QP1TE.

A hawkish BoE hold added to the sense the Fed may not be at the vanguard of policy normalization, with two votes to end QE before its year-end conclusion nL8N2QP2YG.

jobless claims and Markit PMI disappointed, but the August leading economic indicator continued to point to robust growth nL1N2QO235.

EUR/USD gained 0.5%, after barely breaching Wednesday's lows overnight, with prices now by Wednesday 1.17565 high on EBS and by the daily cloud base at 1.1761.
Thursday's rise helped reset oversold daily oscillators and avert a test of August's nine-month low at 1.1664.

The Social Democrats' lead narrowed nL1N2QP1TL ahead of Germany's election on Sunday.

Sterling surged 0.8% on risk-on flows as pricing of rate hikes in Q1 and H2 2022 solidified after the BoE meeting nL1N2QP1C0.
The 1.3750 high was by Monday's high and the kijun at 1.3756-57.
The rebound came after Wednesday's 1.36095 low managed to hold just above August's 1.3602 breakdown low.

USD/JPY fell as hefty haven yen longs taken before the FOMC meeting were dumped, particularly after Wednesday's 109.11 low couldn't crack September and mid-October range lows there.

The normal Japanese exporter offers that might have mitigated Thursday's surge beyond last week's 109.16 highs were lacking due the a holiday in Japan.

Rising stocks and Treasury yields are a bullish combination for USD/JPY given the BOJ keeps JGB yields in tight ranges near zero out to 10 years.

September's 109.45 high and upcoming 110.50 option expiries are the next hurdle.
But the top of the 12-weeks of mutually overlapping trading ranges is at 110.80, a peak that might be out of reach unless the September U.S. jobs report bolsters Fed tapering, Treasury yields and stocks nL1N2QP1GI.

AUD/USD was up 0.9% in an apparent short squeeze, given last week's record $6.102 bln net short AUD/USD spec position nL1N2QP1C3 meeting sizeable risk-on flows.

The Turkish lira's 1.4% slide versus the dollar probed marginally beyond June's record high after the Turkish central bank threw caution to the wind with a 1% rate cut that left the policy rate below the inflation rate nL1N2QP0RH.

German Ifo and post-FOMC Fed speeches top Friday's calendar.

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Refinitiv IFR Research/Market Commentary


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