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Sep 25 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD On The Run As Dollar Finishes Best Week Since April

By Randolph Donney  —  Sep 25 - 02:55 PM

The dollar extended recent gains on Friday, climbing to a two-month high and ending its best week since April with the help of encouraging news about U.S. business investment.

Friday's unexpectedly strong core durable goods orders nL2N2GM0I8 revived the recent notion of the U.S. out-performing Europe during the post-pandemic economic rebound.

The euro zone's rising COVID-19 related restrictions reinforced that, as well as EUR/USD's slide toward key supports by 1.15 nL2N2GM0KE.

The dollar could receive a more enduring boost versus the euro, sterling and yen if the U.S. economy shows greater adaptability to the post-pandemic economic order than Europe nL5N2GM1G0 and elsewhere.

The pullback in U.S. equities this month, which has favored repatriation and safe-haven dollar buying, in addition to resetting of huge speculative bets against the U.S. currency versus the euro, has also been constructive.

Ultimately the economic revival race will be better measured as the third-quarter snap-back in sales and restocking wanes in the fourth quarter and into 2021, particularly as U.S. fiscal relief support dissipates.

Next week's presidential debate, ISM reports and monthly U.S. jobs data may provide some early insights into these key macroeconomic trends.

Dollar gains on Friday came despite steadier U.S. stocks and lower Treasury yields, raising questions about correlations and the impact of end-of-week book-squaring.

The dollar index tested above its downtrend line from March at 94.69, a close above which would target a troika of resistance near 95.50 next.

Sterling, for a third day, probed the 38.2% Fibo of the March-September recovery at 1.2691, while holding near the 200-day moving average at 1.2721 nL2N2GM13D.

With the pound a bit oversold short-term, traders are weighing tightened pandemic restrictions, Brexit risk, the trimmed-down job support plan nL5N2GL3A1, relatively robust retail sales nL3N2GL2HH and the BoE's lack of enthusiasm for negative rates nS8N2F708Y.

Demand for the haven yen failed to hold USD/JPY below Fibo, downtrend line and 21-DMA hurdles at 105.53-62 nL2N2GM0S6.

USD/JPY has become a watered-down version of the dollar index due to lingering demand for the yen as a risk-off hedge.
A convergence of resistance by 106 next week is the next objective.

High-beta and emerging markets currencies suffered the most from the dollar's rise, partly due to general risk avoidance, but also from downward pressure on commodities due to gains in the U.S. currency.

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Refinitiv IFR Research/Market Commentary


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