Dollar Rebounds Further, But Vulnerable if Risk-on Sentiment Returns

Dollar’s broad based rebound continues into early US session, as support by recovery in yields. While overall markets are trading in mild risk-off mode, there isn’t much follow through selling in European stocks and US futures. The greenback’s rally could be killed off quickly if risk sentiment turns. But for now, Dollar is the strongest one for today,, followed by Canadian and Swiss. Yen is the worst, followed by Euro and then Aussie.

Technically, judging from momentum, if Dollar’s rally is going to sustain, USD/JPY would likely be the first one to break through 142.45 minor resistance. Ideally, other pairs should follow, with EUR/USD breaking through 1.0092 support, GBP/USD through 1.1644 support, AUD/USD through 0.65231 support, USD/CHF through 0.9680- resistance and USD/CAD through 1.3494 resistance. Let’s see if Dollar could do that.

In Europe, at the time of writing, FTSE is up 0.02%. DAX is down -0.53%. CAC is down -0.25%. Germany 10-year yield is down -0.011 at 2.006. Earlier in Asia, Nikkei rose 0.16%. Hong Kong HSI dropped -1.87%. China Shanghai SSE dropped -0.39%. Singapore Strait Times dropped -0.66%. Japan 10-year JGB yield dropped -0.0078 to 0.246.

ECB: Lane: One platform for 75bps hike is no longer there

ECB Chief Economist Philip Lane said in an interview that “we expect to raise rates further”. But “each meeting is different” and “one platform for considering a very large hike, such as 75 basis points, is no longer there.”

“When we were at zero, that did not correspond to anyone’s idea of the interest rate level necessary. Going to 1.5 per cent is still below where we need to go,” he said. “But the more you’ve already done on a cumulative basis, that changes the pros and cons of any given increment.”

“I don’t think December is going to be the last rate hike” he said. “Trying to jump forward to February, to March, to May or June next year, I think it’s too early to have very strong views at this point… The more relevant argument than whether to pause is to move at the appropriate time to smaller increments.”

CAD/JPY and AUD/JPY recover as Yen weakens

Yen trades broadly lower today following rebound in benchmark US and European yields. CAD/JPY is one of the top movers for the day. It’s possible that whole corrective pattern from 110.87 has completed with three waves down to 104.06. Break of 106.70 resistance, and sustained trading above 55 day EMA will affirm this case, and bring further rise to retest 110.33/110.87 resistance zone.

AUD/JPY also rises mildly today but stays well below 95.73 resistance. Firm break there will affirm the case that pull back from 99.32 has completed at 90.81. Rise form 90.81 should then resume and target a test on 99.32 high.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0311; (P) 1.0359; (R1) 1.0412; More…

EUR/USD dips further today as retreat from 1.0481 extends but stays well above 1.0092 resistance turned support. Intraday bias remains neutral first. Further rally is expected as long as 1.0092 holds. On the upside, break of 1.0481 will resume the rise from 0.9534 and target 1.0609 fibonacci level. However, sustained break of 1.0092 will turn bias to the downside for 55 day EMA (now at 1.0034) and below.

In the bigger picture, a medium term bottom was in place at 0.9534, on bullish convergence condition in daily MACD. Even as a corrective rise, rally from 0.9534 should target 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Sustained trading above 55 week EMA (now at 1.0566) will raise the chance of trend reversal and target 61.8% retracement at 1.1273. This will now remain the favored case as long as 1.0092 resistance turned support holds.