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Dollar Surges on Risk-Off Backdrop

FOREX
  • The greenback made light work of resistance on the way higher Tuesday, rallying against all others to top the G10 pile. The risk-off backdrop pushing the USD Index well clear of the 106.00 handle for the first time since 2002, mirroring the sizeable drop in European and US equities.
  • Recession fears and diverging policy outlooks remain responsible, with the continued creep higher in energy prices (not helped by outages in Norwegian gas fields) across Europe prompting serious concerns over the feasibility of the ECB's tightening plans for H2. Markets expressed this view by sending EUR/USD below 1.03 - a move that's prompted a number of sell-side outfits to consider the prospect of parity in the pair in the coming months.
  • EUR/USD remains inside the bear channel drawn off the February highs, with initial support crossing at 1.0233, the 1.382 projection of Feb 10 - Mar 7 - 31 price swing.
  • Commodity-tied currencies suffered markedly, with CAD and NOK among the session's worst performers (USD/NOK rose as much as 2.5% ahead of the close) as WTI and Brent stalled, dropping as much as 9% on the day as abject growth fears rippled through the market.
  • The ISM services index is the calendar highlight Wednesday, with markets remaining on watch for any signals ahead of the Friday nonfarm payrolls release. The data follows the final reading of June services PMI, which is expected unrevised. German factory orders, Eurozone retail sales and the Fed minutes are also on the docket.

MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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