Today's rally in the dollar may include a fair amount of position adjustment ahead of the FOMC's June 19 meeting, particularly in EUR/USD.
As of last Friday's release, EUR/USD specs held a net short of 87,551 contracts -- which included 155,771 longs and 243,322 shorts. Some of those EUR longs probably viewed the EUR/USD rise over the most recent reporting period as an opportunity to reduce those positions.
True, the Fed could be edging toward a round of rate cuts, which should weaken the dollar.
However, the near-term rate view also shows a slight reduction in Euribor rates.
Even though the market foresees deeper cuts in the U.S. than in Europe, to the detriment of the dollar, today's U.S. retail sales beat has reduced Fed easing odds, which is USD-positive.
Further, Euribor rates hint at euro zone rates remaining negative until Q2 2023, when markets project U.S. rates to stand at 1.85% even after dropping from current levels by 2.40%. Support by the recent EUR/USD low at 1.1105 should be strong.
In the other direction, expect the 200-DMA at 1.1360 and Jan.
10's 2019 high 1.1570 to provide resistance, even as the Fed adjusts rates lower.
EUR Chart: Click here