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Greenback Continues To Lose Ground As Equities Grind Higher

  • The US dollar has been in steady decline throughout the US trading session on Monday, showing a strong inverse relationship to recovering major equity benchmarks.
  • Improved risk sentiment lent particular support to the Euro, with EURUSD appreciating around 0.7% to ~1.1230. Today's flash estimates of January inflation in Germany, Spain and Portugal were all substantial upside surprises, causing analysts to pre-empt pressure for Wednesday's Eurozone HICP reading and at the same time stoking some renewed optimism for the single currency. First resistance is at 1.1243 High Jan 27 before the more meaningful level of 1.1299 20-day EMA.
  • With the European central bank’s baseline assumption facing increased pressure the ECB could opt to retain some optionality, at Thursday’s meeting, by stressing that inflation forecasts carry a high degree of uncertainty and that there are upside risks to inflation (perhaps citing the risk of persistent energy price pressures).
  • Maintaining its position as the best performing G10 currency overnight, AUDUSD remains 1.15% higher to start the week, bolstered by a sharp retracement back above the key technical level at 0.6993/91, the Dec 3 2021 and Nov 2 2020 lows. While remaining technically vulnerable, firm short-term resistance will be in focus at 0.7130, the Jan 7 low ahead of the RBA’s decision overnight.
  • Elsewhere the dollar lost ground across the board (DXY -0.66%), with relatively smaller gains (0.25-0.55%) being seen for the likes of JPY, CHF, GBP, NZD and CAD.
  • EMFX surged amid the more positive backdrop with emerging market currency indices recording close to 1% gains. Between 1-1.5% advances were seen in MXN, ZAR, BRL and CLP.
  • Canadian GDP and US ISM Manufacturing PMI data headline tomorrow’s data calendar.

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