The haven dollar and yen retreated and the euro gained broadly as last week's concerns about U.S. President Donald Trump's health gave way to hopes that his bout of coronavirus would boost the likelihood of fiscal stimulus.
Stocks and Treasury yields rose and reflation trades funded by selling the yen and dollar benefited as markets saw the fallout from last week's presidential debate and White House COVID-19 infections in political terms nL1N2GU09M.
The Trump administration pressed ahead with relief bill talks nL1N2GW0YQ while investors appeared to believe that a Joe Biden victory would also favor the aggressive fiscal support that the Democratic Party has advocated for.
EUR/USD rallied to a 10-session high, clearing the downtrend line from September's peaks even though underwhelming euro zone PMIs straddled the break-even 50 level, while U.S. ISM non-manufacturing beat forecast and reached pre-pandemic expansion levels nL1N2GW0OT.
Sterling hit its highest since Sept.
21 due to its strong correlation with the S&P 500, EUR/USD and other global risk barometers nL1N2GW0K3.
GBP/USD needs to close above the 38.2% Fibo of September's slide at 1.2984, as well as the 30- and 55-day moving averages at 1.3003/12 to solidify its recovery amid the waning days of EU-UK trade talks.
Prime Minister Boris Johnson said he would be open to an Australia-style EU trade deal if no agreement is reached with the EU nL8N2GT1F1.
The recovery in risk appetite reversed the safe-haven flows that boosted the yen on Friday.
USD/JPY breached its downtrend line from June at 105.68 for the first time and tangled with the Sept.
30 rebound high at 105.80, along with the 61.8% Fibo of the 106.945-104.00 drop and the daily cloud base at 105.82.
And just beyond is the pivotal 55-day moving average at 105.84.
Ten-year Treasury-JGB yield spreads climbed to their highest since June nL1N2GW0M9, reinforcing the risk-on USD/JPY rise.
The 106.18 flat daily Cloud top and the 100-DMA at 106.58 are targets if the 55-DMA is closed above.
With the RBA on Tuesday, AUD/JPY's approach to major resistance at 76.18-20 could set the pace for reflation trades for the rest of the week nL1N2GW0SW.
ECB President Christine Lagarde and Federal Reserve Chairman Jerome Powell are speaking Tuesday to add some interest to a day with little important economic news scheduled.
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