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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