The dollar rebounded in U.S. trade, erasing overnight losses as Treasury yields firmed before new issuance and markets turned cautious ahead of a highly anticipated speech by Fed Chair Jerome Powell later in the week.
Price action indicated traders encountered second thoughts about the dominating speculative long-euro, short-dollar position before such a big appearance by Powell, whom many expect to preview a major policy strategy shift nL1N2FM1N1 on Thursday.
Last week's data indicating U.S. nZON000MP2 and euro zone nL8N2FN1ZJ economic recoveries diverged from their previous EUR/USD bullish bias encouraged the cautious approach.
Risk-on trading, funded with short dollars and yen, was the early feature, fueled by COVID-19 treatment nL1N2FP0B8 and vaccine nL1N2FP09Q headlines.
New U.S. COVID-19 cases have slowed while Europe has regressed, damaging the summer travel season nL8N2FN35W.
Rebounding Treasury yields ahead of $148bln in two-, five- and seven-year Treasury supply over the next three days helped the dollar.
EUR/USD’s string of eight weeks of higher lows could end if Germany’s August Ifo fails to dispel worries about last week’s weak PMIs, or if Powell disappoints dovish expectations of his speech.
Another daily close below 1.1800 and the nearby 21-day moving average would increase the risk of a drop to the 30-DMA and lower 21-day Bolli by the Aug.
14 week’s 1.1711 low.
A EUR/USD close below 1.1700 could trigger broader selling by spec longs.
If Ifo cheers euro bulls, they'll aim for Friday’s 1.1883 EBS high as they set course for another run at the 1.20 target.
This month’s 1.1966 peak nearly completed the 161.8% Fibo off of March’s pandemic base, while weekly RSIs remain overbought nL1N2FQ14E.
Sterling lingered by last week’s low after London’s rebound encountered rejection by the daily tenkan nL1N2FQ12Y.
The IMM net-spec GBP/USD position finally turned long as of last Tuesday, the trend-high session.
And unlike through much of its recovery from March, cable has lost its positive correlation to rising equities and risk over the last week.
USD/JPY rebounded nL1N2FQ18Q from early losses but remained sequestered in the same small range of the last four days, above repeated options props at 105 nL1N2FQ0NA.
Commodity currencies surrendered gains, led by USD/CAD’s rebound after making a double-bottom at last week’s trend low and completing the Fibo-projected slide from the late-June recovery high.
Oil was supported by risk-on flows, early dollar weakness and Gulf of Mexico storms forcing platforms to be evacuated.
Silver and gold retreated given equities gains.
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