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Dec 01 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Holds Big Post-Powell And ISM Gains Pre-Payrolls

By Randolph Donney  —  Dec 01 - 01:45 PM

The dollar index fell 1% in the aftermath of Wednesday's less hawkish than expected comments from Fed Chair Jerome Powell that sent Treasury yields sharply lower and rather dour ISM manufacturing data, with Friday's payrolls report even more important than usual.

The initial dollar slide on reduced Fed hike pricing and risk-on responses to Powell nS0N2W500F was only modestly extended after the ISM manufacturing index's first contractionary reading in 2-1/2 years, with weak details throughout the report nN9N2YW01S.

An unexpected 2.8% drop in German retail sales nAPN0R93XH sent bund yields sharply lower, reinforcing the tumble in Treasury yields and leaving the big EUR/USD rally a bit overdone ahead of Friday's U.S. jobs report.

EUR/USD rose nearly 1% to its highest since June, trading entirely above the 200-day moving average for first time since June 2021, while threatening to close above the 50% Fibo of 2022's drop at 1.5012.

The rally came despite 2-year bund-Treasury yield spreads dipping slightly, as the haven dollar was overwhelmed by risk-on outflows.
If prices close above the 50% Fibo after Friday's payrolls report, a broader retracement would be likely nL1N32R1MD.

USD/JPY, which is highly sensitive to rates since the BoJ-constricts JGB yields, fell nearly 2%, quickly closing the gap toward the pivotal 200-DMA at 134.43.
A close below the final 76.4% Fibo of the August-October advance at 135.48 would increase the risk of August's 130.40 low being reached.

Sterling rose 1.6% on big risk-acceptance that Fed Powell and Chinese COVID policy loosening nL8N32R04F induced, leaving the previously obstructive 200-DMA at 1.2156 in its wake, while probing the 50% Fibo of its 2021-22 downtrend by August's 1.2291 swing high.

Perhaps as a warning that risk-on flows may eventually be tripped up when weakening economic data reverts to being seen as bad news for currencies, the Australian dollar only gained 0.3% and the yuan's recent rebound stalled.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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