The dollar index tumbled on Wednesday after a rebound attempt failed to surpass the 21-day moving average, reaffirming its retreat from this month's highs as equities gains dimmed safe-haven demand for the U.S. currency and traders pruned Fed rate hike pricing.
The Fed's beige book report ahead of its Nov.
2-3 meeting reiterated the supply-side challenges including labor scarcity, cost pressures, disruptions and price hikes nNAQN04RNQ, though markets had already priced in much of this.
The dollar is facing an historically bearish setup presented by U.S. CPI now near its highest since 2008 and real 2-year Treasury yields near their most negative since 1980's post-dollar float low nL1N2RG1FR.
EUR/USD was up 0.2% after an early dip to the just cleared 21-DMA support on news Bundesbank President Jens Weidmann was leaving at year-end, perhaps making room for a less hawkish replacement nL8N2RG2LK.
The rebound from Wednesday's 1.1617 low on EBS remains below the 30-DMA and 38.2% Fibo of the September-October slide at 1.1666/70, but upside risks appear to be growing nL1N2RG19Z.
Adding to the sense the dollar's broader recovery has reached meaningful resistance and warranted a correction, was USD/JPY's 0.15% drop after a fleeting breach of long-term resistance and ahead of late-2017's high and major options barrier defense at 115.
USD/JPY is ripe for a retracement of October's 110.82-114.695 advance, with the 38.2% Fibo at last Thursday's 113.21 low an attractive target nL1N2RG13R.
Though USD/JPY is generally helped by risk-on flows, the drag from the drop in 5-year Treasury-JGB yields spreads more than offset it.
This comes as Japanese officials have been voicing concerns about the weakening of the yen in the context of soaring import prices and a slowdown in exports nL4N2RE057, though FX intervention looks far less likely than rhetoric geared toward keeping yen losses in check.
GBP/USD was up 0.24%, reversing an overnight pullback tied a slightly lower-than-forecast UK inflation print, and back up by the 50% Fibo of the June-September slide, that's also the weekly kijun, and Tuesday's recovery high at 1.3831/34.
Cable was on track to close above the 100-DMA for the first time since Aug.
5, being supported by aggressive BOE rate hike pricing nL1N2RG1DE.
The pound's advance was undeterred by sharply rising UK COVID cases, and related deaths now at their highest since March nL8N2RG1K5.
AUD/USD was up 0.64% and hit a 3-1/2 month high as a risk and commodities proxy and in anticipation of roughly 75bp of RBA hikes next year nL1N2RG27J.
USD/CAD fell 0.44% with Canadian inflation hitting an 18-year high in September nL1N2RG137.
Ether's 6.3% advance led bitcoin's 3.8% rise to fresh record highs nL1N2RG1GH in the wake of Tuesday's strong debut for bitcoin futures ETF, and as risk-on flows and inflation fears work in favor of cryptos.
Unexpected drops in U.S. crude and petrol product inventories sent WTI to a 7-year high.
claims, Philly Fed and existing homes sales top Thursday's releases.
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