In turn, that set off another wave of dollar selling as we see the currency turn to be the weakest performer on the day currently. GBP/USD is trading back up above 1.2000 as buyers look to erase the weekly decline from last week:
Meanwhile, USD/JPY is down 0.3% to 137.65 with large option expiries at 138.00 likely to play a role now in limiting gains before rolling off later in the day. USD/CAD is also trading back under keeping the downside pressure under 1.3000 to 1.2940 currently, as sellers look to build on the rejection of 1.3200 last week.
Looking at commodity currencies, AUD/USD is up over 1% to near 0.6900 at the moment as buyers look to try and establish some footing in chasing a push back towards 0.7000 potentially:
As much as the dollar is down across the board, I’m still not convinced of this being where there is a major turnaround in the dollar trend. Once again, this looks more like a retracement after more broad-based moves in recent weeks with EUR/USD hitting parity a trigger point.
From a fundamental perspective, there is not a lot to like about the euro and the ECB hiking rates by 50 bps this week won’t change that.
The market is running with a 75 bps rate hike by the Fed as being less bullish for the dollar but come next week, I think we may see the script flip the other way around. The Fed is still looking towards a terminal rate of around 3.50% to 4.00% and unless that changes, the dollar has a good reason to stay underpinned; all else being equal.
That might set up EUR/USD for a fade trade around the 50.0 Fib retracement level at 1.0283 or potentially closer to 1.0400. Likewise, AUD/USD might find itself running against a wall at 0.7000 if risk sentiment fails to hold its own, and yesterday’s lack of confidence isn’t encouraging.
This article was written by Justin Low at www.forexlive.com.