Corrective Pressures Give The Greenback A Reprieve

The dollar practically traded the entire August range (~JPY105-JPY107) last Friday. Although it was not subject to follow-through selling this week, it has remains well within that range. In fact, the greenback is edging higher for the third session today and is a little above the midpoint near midday in Europe. There is an option for $1.1 bln at JPY106.50 that expires today, but the intraday momentum indicators suggest the greenback is likely to be capped ahead of it. The Australian dollar set new two-year highs yesterday before reversing lower. A potential bearish shooting star candlestick signaled follow-through selling today and after poking above $0.7400 yesterday, has been pushed back to almost $0.7335 today. The downside momentum has slowed, and a move now above the $0.7365 area would help stabilize the technical tone. The US dollar initially ticked up against the Chinese yuan, but could not maintain the interest and slipped back to extend its losing streak to the fourth consecutive session. The PBOC set the dollar's reference rate at CNY6.8376, a bit stronger than the bank models suggest.  


Around the time the euro was pushing above $1.20 yesterday for the first time since May 2018, the ECB's Chief Economist Lane said that while the central bank does not target the exchange rate, the euro-dollar exchange rate matters. Many see this as a sign of the ECB's growing concern about the euro's strength, especially after the preliminary August CPI report showed a deflation. The risk they see is some more talk along these lines from next week's ECB meeting (September 10).  

The fact that Lane's comments had such weight, though, may reflect market positioning. After all, the speculative positioning in the futures market was record-long euros. And it was not just the euro near key levels yesterday. The Australian dollar had risen above $0.7400, and sterling was approaching $1.35. Gold was near $2000 an ounce. Market talk suggested profit-taking orders were hit. Part of the fuel for the euro's assault on $1.20 was coming from ideas that the ECB was in no position to trump the Fed's move to an average inflation target, which after an initial wobble, was understood to be dollar-negative.  

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Read more by Marc on his site Marc to Market.

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