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Aug 16 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Bounces Off August Lows After Housing Data Dents Dollar

By Randolph Donney  —  Aug 16 - 03:05 PM

The dollar index eased on Tuesday, giving up earlier gains after data showed U.S. housing starts plunged [nL8N2ZS221, leaving it stranded below the midpoint of its July-August fall ahead of Wednesday's important U.S. retail sales and Fed meeting minutes.

A better-than-forecast industrial production report steadied the U.S. currency but the dollar's difficulties helped EUR/USD recover after testing this month's low following a fall in ZEW German investor sentiment nL8N2ZS27V and rise in the euro zone trade deficit nL8N2ZS221.

Investors sorted through contradictory inflation and growth indications such as the fall in Canada's headline inflation rates, even as its core monthly reading increased nL1N2ZS0UD -- sending CGB yields soaring and USD/CAD down from early gains to a 0.44% loss.

Short-term Treasury yields also firmed, with markets still in the thrall of Fed policymakers who warned in the wake of last week's U.S. CPI report -- which was also subdued by lower energy prices nL1N2ZL0KI -- that it was too early to declare victory over inflation.

EUR/USD gained 0.07%, after holding just above August's 1.01225 low on EBS, as well as the 61.8% Fibo of the July-August rebound at 1.0111 and the July 27 ECB meeting-day low at 1.0097.
Its rally in the wake of last week's U.S. CPI report was rejected by the 50% Fibo of the May-July slide and the 55-day moving average.

A clear and sustained break below 1.01 after Wednesday's U.S. event risks could prompt another push to parity.

Given worries about power supplies, Germany said it will postpone the closure of the country's last three nuclear power plant, according the WSJ nFWN2ZS61D.

USD/JPY gained 0.69%, largely on the back of broad unwinding of haven yen longs and resumption of carry trades funded with BOJ-supressed JGB yields.

USD/JPY's rise to 134.685 on EBS was capped just ahead of the 21-DMA and 50% Fibo of the July-August correction at 134.83/89.
The Fed-led uptrend remains intact while above the 100-DMA, last at 131.57, and the 23.6% Fibo of the 2020-22 rise at 130.37 that August's 130.40 low affirmed.

Sterling was up 0.27%, well off the 1.2008 low, but down from the 1.2118 session high, with cable supported by better risk acceptance and bids defending August's 1.2004 lows and against a close below the 50% Fibo of the July-August recovery at 1.2026.

UK inflation data Wednesday will be watched for confirmation the BoE will hike rates by 50bp in September and nearly keep pace with Fed hikes by year-end.
The UK's extremely tight labor market showed some signs of cooling in data released Tuesday nL8N2ZS12M but inflation still outstripped pay growth.

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Refinitiv IFR Research/Market Commentary


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