US Markets

BUZZ-COMMENT-US recap: EUR/USD retreats as dollar does a dead-cat bounce

Credit: REUTERS/DADO RUVIC

The dollar rebounded on Thursday, recovering all of the previous session's losses against the euro as the prospects of U.S. COVID-19 relief spending remained uncertain and the pandemic intensified on both sides of the Atlantic.

Oct 22 (Reuters) - The dollar rebounded on Thursday, recovering all of the previous session's losses against the euro as the prospects of U.S. COVID-19 relief spending remained uncertain and the pandemic intensified on both sides of the Atlantic.

The dollar, which tends to rally when markets are nervous, has been under pressure in recent weeks on expectations of more U.S. fiscal support, though that may be difficult to achieve before the Nov. 3 election.

The lack of instant gratification on the relief bill front led traders to pause dollar selling after big moves earlier this week and before Thursday's presidential debate and PMI reports on Friday.

EUR/USD's failure to hold above 61.8% Fibo resistance at 1.1961 led to a nearly 38.2% Fibo correction of the Oct. 15-21 rise at 1.1807. Downbeat French and German data illustrated the pandemic's economic drag, while a sizeable speculative long position remains a hindrance to the euro.

There is also the risk that, short of Democrats winning the White House and the Senate, further fiscal relief will be delayed or disappointingly small.

GBP/USD surrendered some of Wednesday's 1.54% surge, its best session since late March.

Resumption of EU-UK trade talks fueled sterling's rise on Wednesday, but there's still no indication of an imminent breakthrough . The new mid-November deadline gives markets more time for hope and fear .

The expansion of cash for COVID-hit businesses may cushion the economic blow to the UK economy and sterling.

Wednesday's outsized yen rally came in for a correction, with USD/JPY finding its footing near the day's whopping $2.6 bln of 104.50 expiries at the 76.4% Fibo of the September-October rebound there. It breached but failed to close below that Fibo on Wednesday.

Higher Treasury yields -- after jobless claims fell more than forecast -- supported USD/JPY, but it needs to close above key hurdles at 105.40-08 to shake off Wednesday's wipeout and sell signals .

If it falls beneath September's 104 low, the 101.18 pandemic trough would be on the agenda again .

Trading in high-beta and emerging markets currencies was highly idiosyncratic, not all falling into line with the 0.48% rebound in the oversold USD/CNY overnight.

MXN, BRL and ZAR posted decent gains against the dollar. Stark contrast came from the Turkish lira's 1.6% dive to record lows after the CBRT passed on a major rate hike the market was expecting .

For more click on FXBUZ

(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)

((Randolph.donney@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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