US Markets

BUZZ-COMMENT-US recap: Pre-Fed vigil saps EUR/USD strength, sterling presses on

Credit: REUTERS/THOMAS WHITE

EUR/USD pulled back from recent gains as pre-Fed and month-end book-squaring encouraged traders to address an overstretched rally, but sterling bulls used the lull to score another 4-1/2-month high.

July 28 (Reuters) - EUR/USD pulled back from recent gains as pre-Fed and month-end book-squaring encouraged traders to address an overstretched rally, but sterling bulls used the lull to score another 4-1/2-month high .

The Fed’s announcement extending until year-end various emergency lending schemes and deteriorating U.S. consumer confidence limited the EUR/USD pullback.

Those were partly offset by widening 10-year BTP-Bund yield spreads and weakness in European stocks tied largely to concerns about pandemic hot spots in Spain putting a damper on an already decimated tourist season .

For the first time since July 17, EUR/USD failed to make a new daily high as bulls weighed the risk/reward of holding out for a completed 61.8% Fibo of the 2018-20 slide at 1.1823 that Monday’s 1.17815 EBS peak approached, versus month-end and pre-FOMC profit-taking risk after daily RSIs became extremely overbought above 80 Monday.

Also injecting some near-term correction risk, Tuesday’s range fell away from the recently widening upper 10-day Bolli band.

Profit-taking on long EUR/GBP trades helped sterling to post-pandemic highs versus the dollar and daily RSI to a very overripe 82 reading and almost to the weekly cloud top at 1.2968.

Pound buyers were undaunted by lack of Brexit talks progress and news the UK treasury would not extend the furlough scheme despite worries about surging joblessness .

USD/JPY pierced support just above and at 105 as 10-year Treasury-JGB yield spreads probed 30-year lows retested in April. This as markets debated how heavily the Fed might rely on forward guidance, yield curve control and near- or below zero rates to heal the pandemic-stricken economy and subdue servicing costs of massive government deficits, while Congress negotiated the next trillion-dollar aid package.

A close below 105 would signal a USD/JPY slide to supports just above 104, a move that may be made easier if EUR/JPY has hit a near-term top .

High-beta currencies mostly consolidated in line with the book-squaring within the dollar’s downtrend, with AUD/USD coming up just shy of the July’s 0.7184 post-pandemic high.

The Fed takes center stage on Wednesday, with investors focused on the potential for the ongoing policy framework review and slower-than-hoped egress from pandemic damage to produce a palpable shift in forward guidance that the market has currently priced in with 5-year Treasury yields trading at just 26.8bp.

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(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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