The dollar recovered a small fraction of recent losses on Thursday, tracking the rise in Treasury yields after the Democrats' newly won Senate majority boosted fiscal stimulus expectations.
The gains also came after China's foreign exchange regulator helped set the tone on Wednesday with guidance that markets interpreted as an attempt to abate USD/CNY's 10% plunge nL1N2JH0MU since May.
Forecast-beating U.S. jobless claims nL1N2JH2AV and ISM services nN9N2H700D supported the dollar-positive Treasury yields rise, despite the U.S.'s deadliest day of the pandemic nL1N2JI1SA.
The S&P 500 hit a record high and the Nasdaq rebounded from Wednesday's setback.
EUR/USD slipped after failing to reach Wednesday's high, hurt by disappointing euro zone November retail sales.
The bearish divergence from overbought RSIs and pullback in EUR/USD hasn't breached 21-day moving average support at 1.2213 and remains a correction within the uptrend nL1N2JI1LO.
But, the dollar's correlation to the S&P 500 flipped back to positive after being negative since the pandemic nL1N2JI1H0.
The heavily spec-shorted dollar has reached its most oversold level on monthly RSIs since the global financial crisis and had fallen near major support from 2018's low and 50% Fibo of the 2011-2017 advance at 88.25 earlier this week.
Sterling suffered less than other major currencies nL1N2JI1FU but was still hurt by more aggressive pricing of a BoE rate cut over the coming months after the UK entered its third pandemic lockdown.
Cable is working through overbought conditions but hasn't been able to get much below the 1.3544 low of the Jan.
4 trend-high session.
A close below the rising 21-day moving average, Friday by 1.3500, would signal a bigger retreat.
USD/JPY surged to its highest since Dec.
15, with the yen particularly vulnerable to rising Treasury yields because of BOJ policies keeping JGB rates near zero, and USD/JPY appears to be reversing its downtrend since March.
A 104-plus close could smooth the path to attractive tech targets just above 106 nL1N2JI1QW.
AUD/USD slid after sour trade data and amid the broader dollar rebound, but the pullback would need to break the 21-day moving average, last at 0.7612, to signal a broader retreat.
Emerging markets currencies were harder hit than the majors by the dollar's rebound in a mix of risk aversion and concerns that huge gains in high-risk assets may have to compete with rising risk-free rates in Treasuries and profit-taking in dollar-downtrend-driven long commodities plays.
Friday's U.S. employment report takes the spotlight next, with expectations set low after the unexpected ADP drop nN9N2H700E and the ISM services employment index's drop below the 50.
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