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Dec 22 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Bounces Toward Post-Fed, ECB, Omicron Range Highs

By Randolph Donney  —  Dec 22 - 02:04 PM

The dollar fell on Wednesday against most majors, except the haven yen, as recent risk-off flows and year-end position-squaring subsided, allowing high-beta currencies to recover more of the losses they suffered ahead of last week's Fed meeting and after Omicron angst began at the end of November.

Omicron infections continue to spiral higher in Europe and the U.S., but much of the defensive trading done in the face of this threat has already occurred.

Reports the new variant produces milder bouts of COVID-19 nL1N2T70FE helped sentiment, as did FDA approval of Pfizer's at-home pill treatment that the company's data showed was 90% effective in preventing hospitalizations and deaths in patients at high risk of severe illness nL4N2T72X3.

The dollar index and EUR/USD remain within recent consolidation ranges, contained for now by the Fed being more proactive in reducing emergency stimulus and defending against high inflation than the ECB or the BOJ.

There are inklings, though, that there could be increasing pressure on the ECB to reduce stimulus nV9N2NP01L faster if the 2022 drop in inflation doesn't develop as quickly as hoped nF9N2RF029.

Wednesday's U.S. consumer confidence report for December showed slight softening of present situation readings and jobs availability, but with expectations broadly higher.

The day's other data were fairly innocuous, allowing the Treasury yield curve to flatten and stocks to extend Tuesday's strong rebound, weakening the dollar against risk-sensitive currencies.

EUR/USD gained 0.3%, but remained below last Thursday's BoE and ECB day range high at 1.13605 on EBS and extending the consolidation around 1.1300 since Nov.
24's 1.1186 trend low.

Sterling was up 0.63%, getting more traction than EUR/USD due to the pound's higher correlation to stocks and a far larger net spec short position, the latest of which were added closer to the 1.31615 trend lows, providing short-covering fuel nL1N2T71I6.

Motivating unwinding of shorts were repeated failures to break below twin Fibo props within the 2020-21 rally by December's 1.31615 lows.

Prices cleared the daily kijun at 1.3338 before running into the upper 21-day Bolli by the 1.3362 session high.

Little heed was paid to UK's Q3 GDP revision lower or surging UK Omicron cases.

USD/JPY managed a 0.1% gain as the yen's top funding currency status left it weaker than the broadly retreating dollar, and much weaker against other currencies.

USD/JPY's 113.37 high on EBS stopped a tic below the 61.8% Fibo of its plunge from November's multi-year peak at 115.525 to 112.535.

Price action has gotten more bullish and a run at November's high is possible near-term nL1N2T71EC.

The Australian and New Zealand dollars rallied 0.84% and 0.74%, respectively as risk proxies and with commodity prices rallying.

Bitcoin and ether consolidated after making minor new recovery highs.

Thursday features U.S. jobless claims, November core PCE, spending, income and savings.
Those to be followed by durable goods orders, new home sales and Michigan sentiment.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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