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Jan 12 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Snaps Losing Streak As Dollar Rebound Stalls

By Randolph Donney  —  Jan 12 - 03:03 PM

The dollar retreated on Tuesday after its three-day rebound ran into technical resistance against the euro, sterling and yen, while key U.S. economic reports loomed as event risks.

Rallying bond prices deprived the dollar of some of its recent interest rate support after a well-received 10-year Treasury auction put downward pressure on yields, which retreated from the session's high of 1.187% hit before the sale.

Rising yields on expectations of further fiscal stimulus have underpinned the dollar's early-January rebound.

EUR/USD's 1.2132/37 lows Monday and Tuesday held just above the spike low of 1.2130 struck on Dec.
21 -- the day Congress approved an $892 billion coronavirus aid package.
The overbought condition from daily oscillators to begin this month has been reset, with daily RSIs bouncing from below the 50 midrange level.

But the base above 1.2130 will need to be followed by a close above the 21-day moving average, last at 1.2224, to address Monday's bearish break below it.

If the recent rise in Treasury yields and shift in Fed expectations continue, EUR/USD could fall below 1.2000 nL1N2JN1GJ.

The dollar-bullish rise in nominal and real Treasury yields may prove self-correcting nL1N2JN1ZH due to the potential bearish impact on financial assets prices, but ultimately the pace that vaccines are deployed and alleviate economic pressures could prove decisive.

Sterling surged after Bank of England Governor Andrew Bailey expressed skepticism over negative rates, and was also helped by Monday's ricochet away from 50% Fibo support at 1.3447 nL1N2JN1CA.

USD/JPY failed for a second day to gain traction above its down trend-line from March by Tuesday's 104.335 high on EBS, as well as the flat daily cloud base at 104.32.
Like the other majors, the dollar's recent oversold condition, at least on dailies, has already been corrected, robbing the rebound of some demand.

Japan and the BOJ's battle with deflation remains daunting, with household inflation expectations in December at eight-year lows nL4N2JN17U and BOJ rates targets stalled near zero, as asset purchases expand.

The NFIB small business sentiment plunge in December, to its lowest since May nL1N2JN1LV, was a reminder of just how harrowing the pandemic is on that key U.S. sector.

The dollar's post-London close and 10-year auction slide gave AUD/USD and other high beta currencies an added leg up amid rising energy and metals prices.

The U.S. CPI release will share the spotlight on Wednesday with the Fed's Beige Book.
They will be followed by Thursday's jobless claims and retail sales on Friday.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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