US equities rose again Wednesday, S&P up 0.8%. US10Y yields lifted 7bps to 1.29%, unwinding the delta-induced sell-off seen Monday. Oil is up 4.6%.

Equities continue their bounce back along with UST yields today, with the 10y yield +6bps to 1.28%. The broad tilt to the tape again favors Cyclicals with Energy, Financials, and Materials all performing.

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Investors are starting to think both ECB & Fed will help calm markets by continuing to ride on the "Dove Boat." And with the sudden pushback against a hawkish Fed, is it time for a USD reversal lower yet, or at least a period of extended consolidation?

It seemed that earlier in the week, the panic index about the Delta variant reached a feverish pitch in the UK and Europe. It also triggered growth concerns that could lead to lower inflation expectations and may even help calm markets about the Fed's future hikes, which could get pushed out. As a result, traders are starting to think that today's ECB but more importantly for the US dollar, a growing chorus believes the Delta variant covid surge will scare the major central banks, including the Fed, to err on the dovish side.

With risk sentiment stabilizing, the dollar safe-haven appeal has ebbed. Commodity currencies like NOK, CAD, and NZD lead the rebound versus USD in G10 FX while EUR and AUD lag. Dovish expectation heading into the ECB meeting on Thursday (talk of ending of PEPP most likely delayed until the summer of 22') explains the underperformance of EUR. Meanwhile, AUD sentiment remains negatively impacted by its lockdown and lower growth concerns.

Still, the difficulty we have this week in making definitive short-term FX trading calls is that with little to no data to focus on and both the ECB and Fed in blackout mode ahead of their respective meetings, markets and sentiment are likely being driven entirely by events (ECB & FOMC) pre-positioning flow.

At the end of the day and as far as the Greenback is concerned, it's all about the Fed and risks appetite where it is hard not to envision lots of regime flip-flopping, undermining market conviction through Q3.