The dollar rose broadly on Monday as markets geared up for a Fed meeting that is unlikely to arrest the rise in yields fueling the U.S. currency's rebound, while the EUR/USD was hamstrung by more vaccination hitches nL4N2KI0XB and increased ECB bond purchases nL8N2LD4V9.
Tuesday's U.S. retail sales report will be the main event risk before the conclusion of the Fed meeting on Wednesday.
The FOMC update is likely to produce nuanced adjustments to its forward guidance rather than any clear-cut policy changes, thus allowing Treasury yields to rise if justified by a strengthening economy nL2N2ER0O5.
Treasury, Bund and other major government debt yields pulled back from Friday's highs.
Overall, it's likely the dollar will continue to benefit from rising Treasury yields as the latest $1.9 trln U.S. stimulus and quickening U.S. vaccinations help fill the U.S. output gap faster than most other major economies.
EUR/USD looks vulnerable to further losses after last week's corrective bounce was rebuffed by the first Fibo of its February-March drop, suggesting the pivotal 200-day moving average support by March's low of 1.18355 on EBS in play nL1N2LD1AN.
USD/JPY got closer to June's initial pandemic recovery high at 109.85 with rising Treasury-JGB yields spreads not seen facing much resistance from Fed and BOJ policy meetings nL1N2LD1M7.
There's some risk of a correction as resistance either side of and at 110 is encountered because the big squeeze of IMM spec shorts is nearly complete and overbought daily RSIs could signal a bearish divergence top, even if just an interim one.
Sterling followed the broader theme of moderate slippage against the dollar before the Fed and BOE meetings.
Friday's rebound high was rejected at the 50% Fibo of the late-Feb to early March retreat and Monday's high was back below the 21-day moving average, but still well above the 55-DMA and up trend-line from November that are by this month's 1.3779 low.
Tuesday's U.S retail sales are expected to be down slightly after January's mammoth 5.3% stimulus surge.
Sales data will be watched for how much stimulus gets spent versus saved, and whether it goes more toward services instead of goods, thus less likely to increase the trade deficit.
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