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Aug 11 - 05:55 PM

EUR/USD - COMMENT-US Recap: Dollar's Yield-Fed Rally Steals EUR/USD's Lunch

By Randolph Donney  —  Aug 11 - 03:10 PM

The dollar recouped some losses it suffered during London trade as yields surged before the record Treasury refunding, with an extra lift coming from above-forecast U.S. PPI nAPN0GPHVC and coronavirus vaccine news from Russia nL8N2FD38Q.

Lingering hopes that political pressures will force the U.S. government to agree more pandemic relief than U.S. President Donald Trump’s executive actions can muster nL1N2FC1Y2 also lent the dollar a hand.

Gold's precipitous slide from record highs and plummeting silver, both hurt by surging risk-free Treasury and Bund yields, spilled over into safe-haven yen selling and buying of emerging market currencies.

EUR/USD initially rallied to its high of 1.1809 on EBS after forecast-beating German ZEW sentiment nL1N2FD1EJ, but its current-conditions miss -- remaining near pandemic lows -- and falling Bund-Treasury yield spreads scotched the London rally.

EUR/USD likely remains historically net spec long on the IMM and is still working off overbought pressures from July.
Offers by the tankan line at 1.1805 also tipped that longs were probably still paring positions nL1N2FD0WG.

Early signs the pandemic’s pace has slowed in the U.S. and more worrisome signs from the Netherlands nA5N28R02F and a warning from France that it may get harder to control the coronavirus spread nL8N2FD591 are other considerations.

The broader dollar index has settled into a range below last week’s high by 94.00, with room to roam up to Fibo and March low resistance at 94.52/63 if the three-day rebound in TIPS yields persists.

The yen’s fall with precious metals pushed USD/JPY to new August highs and by the mid-July range low and the 61.8% Fibo of the July slide at 106.64, a close above which could see a run at the flat daily cloud top at 107.92 that’s close to July’s 108.16 swing high nL1N2FD1GC.

Erosion of Japan’s current account surplus nL4N2FD0EI and the highest 10-year Treasury-JGB yield spreads in over a month underpinned prices.
EUR/JPY returned to its highest since Friday’s 125.58 post-pandemic peak after tankan support held on Monday and Tuesday.

Sterling’s quest to retest its March pre-pandemic peak at 1.3200 faltered after poor UK employment data nL8N2FD1DP and the dollar’s Treasury-yield-supported rebound.

The Australian dollar struggled in the face of gold's tumble and a drop in business confidence tied to pandemic lockdowns nS9N2EK01D.

Rotation out of momentum and some tech stocks and into value and more industrial stocks, as well as vaccine hopes, lifted most emerging market currencies, helped by hopes this weekend’s U.S.-China trade talks won’t end poorly.

The data focus Wednesday will be on U.S. July CPI.


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Source:
Refinitiv IFR Research/Market Commentary

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