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Dollar Whipsaws On Omicron/Fed’s Powell Headlines

FOREX
  • The greenback spent the early part of Tuesday in a steady downtrend as Moderna's CEO poured some water on hopes that the current suite of vaccines would retain effectiveness in the face of new variants.
  • Just as wires reported the U.S. dollar was posting its biggest drop since early May, Fed Chair Powell shocked the markets by stating the FOMC can consider wrapping up the taper “a few months early” as well as commenting that it may be time to retire the word transitory regarding inflation.
  • The headlines culminated in an immediate spike in the dollar and an entire reversal of the day’s losses. The dollar index rallied a little over 1% amid the pressure in equities and front-end US yields shifting higher. EURUSD sold off from 1.1375 to 1.1236 and USDJPY rose back above the 1.13 mark to print highs at 1.1370.
  • Despite the powerful move higher for broad dollar indices, follow through was short-lived and momentum quickly subsided. The dollar index spent the next few hours grinding lower, back into negative territory. As of writing, the DXY resides down 0.25%.
  • Overall, there are mixed performances in G10 FX. With EURUSD and USDJPY broadly tracking the dollar index performance, risk/commodity tied currencies such as AUD and CAD have actually weakened around 0.5% against the greenback – continuing their November downtrends.
  • On the technical front it is worth pointing out that initial firm resistance in EURUSD at 1.1374, Nov 18 high and the 20-day EMA at 1.1383. have held at the first time of asking amid the volatile price action.
  • In emerging markets, USDTRY made another all-time-high at 13.6820 as reports emanated that a central bank executive director had left his post and Lira losses extended amid the late hit to global risk sentiment.
  • December kicks off with Australian Q3 GDP overnight before final European PMI prints. US ADP and Ism Manufacturing PMI headline the US docket ahead of Fridays NFP report.
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