The dollar recovered much of its losses on Friday, particularly against higher beta currencies, after Fed Chair Jerome Powell reaffirmed the U.S. central bank's tapering intentions and readiness to react if inflation proves more pernicious than expected nW1N2QN003.
Most of the reaction came against risk-sensitive currencies such as sterling and the Australian dollar, as stocks initially took a hit on the Powell headlines, though the safe-haven yen benefited while EUR/USD eventually drifted lower.
The heightened risk aversion came in response to a spike in Fed rate hike pricing, but short-term yields came off their highs and stocks recovered most of their initial losses, stalling the dollar and yen.
EUR/USD was up 0.06% after its brief rise to the 1.1656 EBS high ran into resistance from the falling 30-day moving average and tenkan, and ahead of the 38.2% Fibo of the September-October slide at 1.1670 that has capped its recent recovery nL1N2RI1B4.
The dollar index bounced back toward unchanged -- after its very short-lived dip to Friday's low -- as the Powell headlines began.
The rebound was aided when it became clear the correction from October's pandemic recovery peak was unlikely to close below the 38.2% Fibo of the September-October rise it probed all week at 93.56.
But dollar gains based on rising Treasury yields may struggle as 5- and 10-year Treasury yields near major resistance nL1N2RI1AC.
Those yield hurdles are in play as the Fed's pivotal Nov.
2-3 meeting and the Nov.
5 employment report come into view.
USD/JPY fell 0.48%, unable to find traction after PMI readings nL1N2RI1HU or sustain a bounce on Powell's comments nL1N2RI1PV.
The unwinding of overbought longs looks headed for the 38.2% Fibo of the October's advance and the Oct.
14 pullback low at 113.21.
Prices are set to post their first close below the daily 10-DMA and tenkan since surging above them near 109.65 on Sept.
22, the day of the last Fed meeting.
GBP/USD was down 0.25%, having failed for a fourth day to make headway above 1.3831, the 50% Fibo of the July-September slide.
The 1.3815 high was instigated by BOE's new chief economist Huw Pill being quoted by the FT as saying he expects inflation to rise to 5% in early 2022, and then recede in H2 2022.
AUD/USD was flat, unable to hold on to early risk-on gains, after the RBA defended its yield curve control target and assertion there will be no rate hikes before 2023 nL1N2RI09W.
The sharp spike in Fed rate hike pricing and another drop in copper prices left AUD/USD near Friday's low after getting heavily overbought with Thursday's approach toward 200-DMA resistance.
The focus next week is on Thursday's BOJ and ECB meetings, German inflation, U.S. Q3 GDP, core PCE and jobless claims, followed by Friday's euro zone inflation, U.S. personal income, spending and PCE.
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