The dollar suffered broad losses on Wednesday led by the euro and sterling nL1N2EF1O9, even without a strong rise in risk markets to motivate investors, as the currency's downtrend deepened in the wake of the resurgent U.S. coronavirus outbreak.

The wide distribution of the day's dollar decline against haven currencies, high betas and even some emerging markets marked a different and somewhat darker tone for the U.S. currency.

EUR/USD and the dollar index have both seen the 30-day moving averages attract increased dollar sales in recent sessions.

Dollar index selling has also been reinforced by this week’s so-called death cross, with the 50-day moving average having crossed below the falling 200-DMA.

EUR/USD needs to close above the 61.8% Fibo of the pullback from June’s high at 1.1325 and the 200-week moving average at 1.1335 on daily and weekly bases, respectively, to put in play June’s 1.14225 high on EBS and perhaps March’s peak and a Fibo target by 1.1500.

German Chancellor Angela Merkel, whose country holds the EU presidency, called on the bloc to swiftly reach a COVID economic recovery deal nL8N2EF3QA.
Optimism about sharing the cost of recovery is euro-supportive, but even core economies like Germany nL8N2EF157 may need help as major exporters face lingering foreign demand weakness and other headwinds.

USD/JPY succumbed to widespread dollar weakness nL1N2EF1TI after completely falling out its daily cloud to again probe 21-DMA support at 107.23.
A close below the tankan at 107.48 and the 21-DMA would open the door to the June 26 swing low and weekly kijun at 106.80/70.

USD/GBP gains received help from British Finance Minister Rishi Sunak’s recovery plan nL8N2EE3YG while shrugging off Merkel’s Brexit gloom nL1N2EF14S.

Traders will watch how the explosive rally in Chinese stocks responds to regulators naming 258 illegal margin lending platforms nL4N2EF30B given concerns about the speculative and leveraged nature of the recent surge nL1N2EF0TQ and after this week’s CSI 300 highs reached a Fibo-projected peak nL1N2EF0TQ.

Beyond the precarious U.S. pandemic news, attention is also being paid to Fed warnings about the need for more fiscal backstopping nL1N2EE1I3, even as some of their financial system support programs proved so effective their use has diminished nL1N2EF0SA.

For Thursday, the focus will be on weekly U.S. jobless claims which, unlike rapidly rebounding non-farm payrolls, have only marginally retreated from extremely elevated levels the past four weeks.

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• USD/JPY beset by broad USD weakness and its drop out of the daily cloud

• For 4th straight session, prices probing falling 21-DMA prop, 107.23 last

• Looks set to close well below tenkan at 107.48, affirming cloud break sell

• A clear break or close below the 21-DMA eyes 106.80 June 26 EBS swing low

• Weekly Kijun's at 106.70; a close below it eyes May-June lows by 106

• Bears are in charge while below the 100-DMA, 107.79 last

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• GBP firm into NY close +0.51% at 1.2607; NorAm range 1.2610-1.2529

• USD broadly weak as upbeat glbl growth view trumps rising US virus rise

• Sterling overcomes Merkel's Brexit gloom, eyes rise to 200-DMA nL1N2EF14S

• 55-WMA res at 1.2609 holding, next 30-WMA by 1.2626, then 200-DMA at 1.2696

• Bulls in control above cluster of DMA's 1.2454-1.2427 (10/100/55)

• EUR/GBP +0.06% to 0.8991, Wed range 0.9010-0.8978, moves dollar based

• Recent cross weakness has aided GBP ascent vs USD and other major CCYs

TD Research discusses adopts a buy-on-dips bias in AUD/NZD.

"We are also keenly watching AUD. The currency remains overloved but we reckon that established ranges will prevail," TD notes. 

"We are however, patiently waiting to leg into AUDNZD longs as we think the RBNZ is becoming increasingly weary of NZD strength that has grossly overshot their expectations. Consolidation into 1.0580/00 would wet our appetite," TD adds. 

AUD/USD's rally may pause for now after the Melbourne lockdown and signs of concern in the options market offset bullish factors that had fueled the aussie's rise.

AUD/USD price action on Tuesday was a warning sign for longs after the lockdown of Melbourne nL4N2EF0YR emerged as a potential drag on the Australian economy's recovery.

A daily doji formed on the charts, suggesting indecision, and daily RSI diverged on the new high, implying that the rally could be fading.

Options should also give longs pause, with AUD/USD one-week, one-month and three-month risk reversals showing vol premiums for puts increasing over calls, reflecting concerns about a downside move.

Still, commodity gains and other bullish technical signs should comfort longs.

Copper futures HGv1 have rallied to nearly six-month highs while iron-ore futures DCIOc2 are at near-one-year highs.

Rising daily and monthly RSIs, the recent 50-day moving average cross above the 200-day moving average and rising 10- and 21-DMA support highlight upside risks.

The 0.6995/0.7005 zone has hindered AUD/USD longs.
They'll need improving risk appetite to break through and test June 2020 and March 2019 monthly highs.

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Bank of America Global Research discusses the USD outlook and flags a risk of further weakness over the coming weeks from a death cross in the USD Index 'DXY'.

"A couple of weeks ago we suggested the Fed may shift from a preemptive to more reactive stance, potentially limiting further decline in US real rates. But we were proven wrong with real rates approaching 2012-13 lows across the curve. While the Fed has implied that yield curve control may not be as imminent as the consensus expects, the overall communication has remained very dovish with the Fed committing to no further tapering of its asset purchases (and open to expanding if needed) as well as looking to reinforce its forward guidance," BofA notes. 

"The USD has been relatively stable in the face of the latest collapse in real rates but our technical strategist flags confirmation of a death cross in the DXY (50d average below the 200d average), which is typically associated with a weaker dollar in subsequent weeks," BofA adds. 

After weathering Tuesday's risk-off storm EUR/USD appears set to resume its upward trek with the help of supportive technicals, positioning and market views on inflation.

EUR/USD tested the 21-day moving average as well as former trend-line resistance from the topside during Tuesday's selloff, but bears' failure to sustain a move below those supports could allow them to act as a springboard for gains.

Though CFTC data nL1N2ED1VT showed a sharp reduction in net-long euro positions, EUR/USD continues to trade near recent highs.
The position reduction may also bolster expectations of EUR/USD gains as it could indicate less profit taking selling pressure from longs.

With euro zone 5-year/5-year inflation-linked swaps EUIL5YF5Y=R trading near recent highs and poised to rise further once they complete their current consolidation phase following the March-July rally, inflation views should also support EUR/USD.

Meanwhile, daily and monthly RSIs imply upside momentum remains intact, the 55-DMA crossed above the 200-DMA and EUR/USD is being supported by the 10- and 21-DMAs.

The 1.1345/55 zone is an impediment for EUR/USD longs but, should it break, tests of June and March monthly highs would be likely.
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Citi discusses AUD and NZD outlook and notes that the 2 currencies are likely vulnerable to renewed bouts of risk aversion.

"A lot of upside drivers for AUD and NZD (advanced COVID-19 containment, reopening economy and sizeable government and central bank support) seems discounted. This makes both AUD and NZD vulnerable to renewed bouts of risk aversion should US-China and AustraliaChina tensions escalate," Citi notes. 

"Taking a longer term view, the prospect of the RBA keeping its current ultra-low policy rates for an extended period and Reserve Bank of New Zealand potentially entertaining negative rates means further extensions of recent gains look unlikely," Citi adds. 

Credit Suisse discusses USD/JPY technical outlook and highlights the importance of holding the 107.25 for near-term direction. 

"USD/JPY support from the “neckline” to the small base continues to hold, seen at 107.25 and the immediate outlook stays finely balanced. Above 107.78 is needed to ease the pressure off the base “neckline” to reassert an upward bias for strength back to 108.17/24, then the 200-day average at 108.39/43. Whilst we would look for this to cap at first, a break in due course should see resistance next at the “measured base objective” at 108.84, with the top of the downtrend channel from late March seen at 109.11," CS notes. 

"Below 107.25 would see the base neutralised to reinforce the broader sideways range with support seen next at 107.05, then 106.80/79. Removal of here can see a retest of 106.12/105.98," CS adds.

• Cable ascends to threaten 1.2568 as Finance Minister Sunak sets out UK plan

• See: nL8N2EF2F8nL8N2EF33L. 1.2568 = Ldn am high (before drop to 1.2509)

• Offers may emerge ahead of 1.26 if GBP/USD extends north

• 1.2593 was Tuesday's 3-week high; five pips shy of Fibo resistance level

• See: nL1N2EF08K. Ascent to 1.2593 was fuelled by EU-UK compromise hope

• EU assessing divergence in London's financial market access nL8N2EF1X3

• AUD/USD has traded a quarter-cent range since the Ldn open, 0.6928-0.6953

• The base of that range is four pips shy of Tuesday's low nL1N2EE0ET

• Bids were recently tipped at 0.6925-20 (0.6925 was Monday's low)

• 0.6977 (rally high from 0.6924) and 0.70 are resistance levels beyond 0.6953

• Australia battles to contain Melbourne coronavirus outbreak nL4N2EE4GW

• More: nL4N2EF161. U.S. tops 3 million confirmed virus cases nL1N2EE1CX

FX options have been positioning for the risk of further gains toward 1.1500 over the coming weeks and months, but demand for this upside protection is faltering now.

That doesn't mean option traders don't still see EUR/USD heading higher over time, but while it struggles to gain any traction above 1.1300, they prefer to hold back and sell some options to cover time-decay costs.

That's apparent when looking at price action.
Implied volatility is easing again - benchmark one-month at-the-money are dropping to recent lows at 6.6 Wednesday, while the premium for EUR calls over puts (the right to buy EUR vs sell it) on one-month risk reversal contracts has dropped back to 0.3 from 0.5 vols.

A massive 2.7 billion euros of 1.1300-10 option expiries nL1N2EF07C and related hedging flows may contain EUR/USD Wednesday.
Forty 40 billion euros over the next two weeks between 1.1200-1.1400 are also helping to contain the pair inside those parameters nL1N2ED07N.

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• Dollar fragile against yen in these uncertain times nL1N2EE2JJ

• USD/JPY's recent bull trap above the 107.97 Fibo keeps bias in the downside

• 107.97 Fibo is a 50% retrace of the 109.85 to 106.08 June (EBS) drop

• That led to a break/close under daily cloud, that spans 107.75-108.85 region

• Interim supply noted at the kijun line at 107.96 should cap recovery moves

• EUR/JPY has seen a 121.15-121.42 range, according to EBS prices

• USD/JPY Trader TGM2336. Previous update nL1N2EE0C7

• AUD/USD dented by virus curbs but China stocks help prop up

• Tentatively falls out of Bollinger uptrend channel at 0.6935

• But still above 20 DMA 0.6897, offering solace to AUD bulls

• Melbourne's 6-week lockdown will hurt econ recovery nL4N2EE4FE

• But China's resurgent stock market buoys risk appetite; SSEC +2.0%

• Strong rise in copper prices hints at improving outlook nL4N2ED0S1

• For more click on FXBUZ

  
  

• Cable elicited support pre-1.2530 (July 2 high) after retreating from 1.2593

• 1.2593 was 3-week high Tuesday after 130 pip rise on EU-UK compromise hope

• See: nL8N2EE2ZT. 1.2593 = five pips shy of 61.8% Fibo of 1.2812-1.2252

• UK would leave EU on Australia terms if no deal reached, UK PM tells Merkel

• See: nL8N2EE60C. Familiar mantra from Johnson nL1N2EA09KnL1N2E60A8

• UK Finance Minister Sunak delivers statement to MPs at 1130GMT nL8N2EE3YG

• FX options expire at 10-am New York/3-pm London

• EUR/USD: 1.1250 (550M), 1.1275 (250M), 1.1300 (1.9BLN),

• 1.1305-10 (800M), 1.1320 (320M). Related nL1N2ED07N

• AUD/USD: 0.6895-0.6900 (550M), 0.6975 (513M), 0.6985-90 (500M), 0.6995-0.7000 (450M)

• NZD/USD: 0.6525 (263M)

• USD/JPY: 107.45-55 (3BLN), 108.00 (500M)

• AUD/USD opened 0.42% lower at 0.6945 and traded in a 0.6932/50 range

• Asian markets were slightly higher and E-mini futures gained 0.22%

• Concerns over the spread of coronavirus in Melbourne capped AUD/USD nL4N2EE4FE

• AUD/USD support at 10-day MA at 0.6916 and 21-day MA at 0.6902

• Sellers camped ahead of 0.7000 with resistance @ June 10 trend high @ 0.7069

• For more click on FXBUZ

Sterling bounced on Tuesday in the face of a broadly stronger dollar, driven by hopes of a breakthrough at high-level Brexit talks.
Yet all the signs suggest any assumption that economic pragmatism will overcome notions of UK sovereignty could prove as misplaced it was during the 2016 Brexit vote.

A Reuters poll last week showed that the market is optimistic on a Brexit agreement, with analysts expecting the pound to rise 4% over the next year nL8N2E82DJ. This could explain Tuesday's sterling bounce on hopes of a breakthrough at informal dinner talks between the top British and EU negotiators nL8N2EE2ZT.

Yet the news from the dinner was that, as always, both sides hope for a compromise, while Prime Minister Boris Johnson told Germany's Angela Merkel on Tuesday that the UK is prepared to leave the EU on Australia terms if no deal is reached nL8N2EE60C.

Technically, the rejection of a 21-day Bollinger band and the close through the 21-day moving average are often followed by a test of the opposite band, as seen twice in May.
Tuesday's close above the 1.2490 21 DMA after rejecting the lower band in June, targets a test of the 1.2691-96 zone that spans the falling upper 21-day Bollinger band and 200 DMA, and should cap GBP/USD.

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• Flat - closed -0.3% on risk off coronavirus led USD strength nL1N2EE1CX

• Italy PM will not accept 'weak compromise' on EU recovery fund nL8N2EE5T3

• Frugal four continue to hold out on EU budget package - compromise essential

• Charts; momentum studies, 5, 10 & 21 DMAs conflict - neutral setup

• 1.1174 lower 21 Day Bolli and 1.1157, 38.2% April-June rise, range base

• 1.1346 upper 21 day Bolli and 1.1353 mid June high - resilient range top

• 21 day Bolli bands are a good indicator of an over stretched market

• 1.1250 530M and 1.1300-05 1.5BLN are today's close strikes contain

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• USD/JPY trades in 107.25-107.79 range Tues, sandwiched between 21 & 100 DMAs

• Absence of fresh leads & countervailing factors result in consolidation

• USD supported by safe haven demand as U.S. virus crisis deepens nL1N2EE1CX

• Undermined by risk-off mood as U.S. stocks close lower, ending 5-day rally

• Fed policymakers worry growth plateauing, pledge more support nL1N2EE1I3

• Support 107.25(21-DMA) 107.04-12; resistance 107.78(100-DMA), 107.95-108.00

• For more click on FXBUZ

• AUD/USD opens 0.42% lower at 0.6945, as Wall Street ended winning streak nL1N2EE23S

• The Melbourne lockdown and Fed warnings on recovery difficulties weighed nL4N2EE02FnL1N2EE1I3

• Sellers ahead of 0.7000 capped rally and 0.7000 is now resistance

• Support is found at the 10-day MA at 0.6917 and 21-day MA at 0.6902

• Key in Asia will be AUD/JPY flows and moves in Asian equities

• For more click on FXBUZ

NAB Research discusses AUD/NZD outlook and maintains its targets at 1.09 in Q3 and 1.10 in Q4.

"Our AUD/NZD view has been one of near-term consolidation, following the plunge from parity, ahead of the next run higher, to at 1.10 by year-end," NAB notes. 

"The combination of COVID19 trends in Victoria and the increased Australian-China geopolitical tensions suggests that the cross is unlikely to move higher while these risks are in focus. In a couple of months, they could easily pass, so we are not changing our outlook for the cross but are monitoring the situation closely," NAB adds. 

The dollar struggled to maintain Tuesday's safe-haven gains that came when markets turned cautious on the previous session's China-led ebullience, while fresh Brexit hopes helped brighten sterling's outlook nL1N2EE1CB as EUR/GBP fell below key trend lines.

The dollar rebound was plagued by coronavirus uncertainties and yet another stellar U.S. jobs update nAQN02S53T.

EUR/USD fell to a low of 1.2585 on EBS amid the dollar’s rebound before the U.S. open but trimmed losses along with stocks.

The EU deepened its 2020 and 2021 recession forecasts nL8N2EE1SG for the region, which were roughly in line with other major economies facing bumpy recoveries.

Atlanta Federal Reserve Bank President Raphael Bostic echoed this sentiment nW1N28N014, while ECB board member Isabel Schnabel nF9N2DF00K sounded more optimistic.

Though EUR/USD’s recovery from June’s pullback lows remained intact above the rising 30-day moving average at 1.1240, its inability to overcome supply near Fibo and 200-week moving average hurdles in the mid to lower 1.1300s has stalled the move nL1N2EE0RL.

Much of the day's price action was a correction from Monday's risk-on flows, in part because the USD/CNH found support just above the pivotal 7.0 level and the momentum and government induced surge in Chinese stocks seemed to break stride finally with a lower close than open.

Though still a gain, it left some wondering if the aggressive advance to highs not seen since 2015 will share the fate of that year’s bubble, which ultimately burst.

The pound rose to a three-week high against the dollar with the help of selling in EUR/GBP, which dropped below uptrend lines dating back to April and February.

Sterling's outlook got a lift from hope that a dinner meeting between EU and UK trade negotiators nL1N2EE0ZL might help break the impasse in Brexit negotiations.

USD/JPY’s currently negative correlation with risk-flows allowed for a rebound off 21-day moving average support by the 107.25 low to the 107.79 EBS high in London trade, followed by a retreat as stocks pared losses.

A close below the tenkan at 107.48 would make its drop out of the daily cloud look more bearish, particularly if the 10-year Treasury-JGB yield spreads that USD/JPY follows continue their fall.

Risk aversion left most high-beta and emerging market currencies playing defense, despite moderate gains in copper and crude.

The U.S. data calendar is thin until Thursday’s jobless claims, which have remained stubbornly stratospheric despite surprisingly strong non-farm payrolls the last two months.

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• EUR/USD inside Monday's China-led risk-on 1.1245-345 rise

• Stocks see corrections, key CSI300 shows overbought signs

• EUR/USD again finds offers in 1.1300s nL1N2EE0ME, 1.13315 EBS high

• Bulls need close above 61.8% Fibo, 200-WMA at 1.1325/34 to breakout

• Recovery from June's pullback low intact while above 30-DMA, 1.1240 last

• EU deepens 2020 EZ recession outlook to -8.7% from -7.7% prior nL8N2EE1SG

• For more click on FXBUZ