The dollar and yen fell sharply against the euro after the ECB increased its PEPP program nAPN0E8YT4 more than expected, while modest disappointment in U.S. jobless claims data nAPN0E90KG failed to derail the broader risk recovery that has left the two safe-haven currencies in the dumps.
EUR/USD’s parabolic rise nL1N2DH1MW is quickly closing the gap on the 1.1495 March and 2020 EBS high, driving daily RSIs to their most overbought since March’s pandemic peak in the process.
The PEPP increase and Germany’s additional 130 bln euro fiscal stimulus nL8N2DH1XY were seen as euro-positive by supporting euro zone economic recovery.
But, with the euro no longer seen as a cheap currency, European stock markets were kept in check.
Also hindering were the ECB’s downwardly revised 2020-22 inflation forecasts nJUNEFCAST and ECB President Christine Lagarde’s sober assessment of the region’s economic challenges.
Lack of ECB discussion about buying junk bonds didn't help either, while markets are also awaiting the EU fiscal package to provide support.
Ten-year BTP-Bund yield spreads tumbled to their lowest since late March, with BTP yields down 17bp at one stage, a green light for EUR/JPY to get well beyond this year’s prior peak at 122.88 nL1N2DH140.
The dollar index extended its plunge toward a measured ABC objective at 96.20, disregarding oversold readings close to March’s extremes, instead focusing on the stimulus and reopening-driven global recovery.
Senate approval of a bill on Wednesday extending the Paycheck Protection Program to 24 weeks from 8, with greater leeway for how the money can be spent nL1N2DG2ZJ also helped, even though legislation to vastly expand relief efforts remains on hold.
USD/JPY’s rally so far was capped by a pending ABC corrective objective at 109.16, but also fresh dollar losses, with a close above 109.16 opening the door to retesting April’s high and the 61.8% of the March-May slide at 109.38/53 on EBS.
Cable limped in with modest gains nL1N2DH17Z as trading becomes more two-way the closer prices get to April’s 1.2648 high and the 200-DMA at 1.2675, and ahead of Friday’s end to this week’s EU-UK trade talks.
Lower oil prices on doubts about OPEC+ production cuts left related currencies weaker, as EEM, the EM ETF, fell away from yesterday’s test of 200-DMA resistance.
Next up, Friday’s U.S. employment report is expected to show a jobless rate of 19.8% and an 8 mln drop in nonfarm payrolls, the make-up of which will be closely scrutinized by markets.