Dollar bid fades again

KBC Market Research Desk KBC Bank

Global sentiment improved as yesterday's session developed, easing the bid for the dollar. Eco data again only played a secondary role. The dollar traded strong early in Europe with the TW dollar (DXY) touching 97.60. EUR/USD filled bid below 1.12 even as EMU PMIs and German labour and retail data beat expectations. A rise in core EMU yields initially also didn't help the euro. The dollar turn south in US dealings. Positive test results for a new corona vaccine and a solid US manufacturing ISM (52.6 from 43.1) supported an equity rebound. EUR/USD even closed with a modest gain (1.1251 from 1.1234). USD/JPY didn't profit from the risk-on and mainly followed the broader USD decline (close at 107.47).

This morning, Asian equities join the risk rally from WS despite rising tensions between China and the US on the implementation of the National security law in Hong Kong and a record rise in new infections in the US. EUR/USD extends gains (1.1265 area). USD/JPY stabilizes (107.50 area) but again doesn't profit from the risk-on. The yuan (USD/CNY 7.0675) hardly profits from yesterday USD decline even as the PBOC put the daily fix rather strong. AUD/USD regained the 0.69 barrier, with recent top levels still with reach (AUD resilience).
Today's focus is on the US payrolls. The report will be released today as US markets are closed for the 4th of July tomorrow. Job growth is expected to recover by 3.058 mln after last month's surprise gain of 2.5 mln. There are probably statistical issues in play that might complicate the outcome, but the consensus estimate looks reasonable. Yesterday, the dollar declined further after a strong ISM due to the positive risk-off. This might still be the case with a constructive payrolls report. EUR/USD settled in a ST consolidation pattern near 1.12. The picture turned a bit more fragile but the 1.12/1.1160 support proved quite solid and this was confirmed yesterday. We look for confirmation on an EUR/USD bottoming out process. A break above 1.1288 would give some comfort with 1.1349 next reference on the charts.

Sterling further reversed the sharp loss against the euro earlier this week. EUR/GBP drifted further south in the 0.90 big figure. The move was mainly technical in nature, but was also supported by rebound in UK yields. There are no UK data today. Headlines on the process of the Brexit talks again show little progress. We expect the sterling rebound to slow with EUR/GBP 0.90 area a first technical support.

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KBC Market Research Desk

KBC Bank

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