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Dollar looks strong ahead of European opening

The EURUSD pair dropped 0.15% to 1.1736 by the close on Monday, August 9. The euro bulls fought to gain a foothold above 1.1765, but failed. Dollar buying resumed with renewed impetus by the opening of the North American session. Major currencies, which were trading in positive territory, all turned red. The Swiss franc took the biggest hit against the dollar.

Atlanta Fed President Raphael Bostic added fuel to the fire. He said the US economy is improving faster than expected. He expects the Fed to start scaling back bond purchases in Q421.

Demand for the US dollar rose on Friday (August 6) after the release of solid labor market data for July. The data boosted confidence that the Fed should announce the start of a bond purchase taper by year-end.

Today’s macro agenda (GMT+3)

  • 12:00 Germany and Eurozone: ZEW economic sentiment (August)
  • 15:30 US: nonfarm productivity and unit labor costs (Q2)
  • 23:30 US: API inventory report

Current outlook

The euro fell to 1.1735 On Monday, and 1.1732 on Tuesday. Early this morning, the dollar saw gains, while commodity-linked currencies were in retreat. Australia registered a sharp decline in business confidence (-8), according to the NAB business confidence index that ran from July 20 to 30. AUDUSD retraced to yesterday's low of 0.7328 and then returned to the 0.7329 level. Selling is thin and buyers are trying to take advantage of this trend.

News from China also triggered market negativity. Mainland China today reported the highest number of new COVID-19 cases since January 20 (143, up from 125 on Monday). New restrictions put pressure on the oil market and currencies underpinned by Asian trade relations.

Friday’s strong NFP print, alongside comments from Clarida and Bostic, have solidified expectations for a taper announcement at the Jackson Hole symposium. Bostic strengthened bearish euro sentiment, but the bulls are still pushing for a correction. They may succeed as the focus of traders' attention shifts to the US inflation report due out on Wednesday.

By the time of writing, euro crosses were all trading in positive territory. Looking at the daily TF, the 1.1615-1.1650 band looms large on the bears' horizon. On the hourly TF there is a risk of a leg up to 1.1720. For the bears to start closing shorts, the bulls will need to raise the price action above 1.1746 (trendline breakout).


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